Oil prices hit four-week high on falling U.S. crude inventories

Through Devika Krishna Kumar and Sheela Tobben to 12/22/2021

(Bloomberg) –Oil hit its highest level in nearly a month after U.S. crude inventories fell and economic data pushed stocks higher.

West Texas Intermediate futures rose 2.3%, closing above $ 72 for the first time in two weeks. Prices rose after the Energy Information Administration said crude inventories fell 4.72 million barrels last week. Meanwhile, rising home sales and consumer confidence signaled the strength of the economy, easing concerns about the impact of omicron.

“The report was slightly bullish, due to the large drop in crude oil inventories,” said John Kilduff, partner of Again Capital LLC. Although he cautioned, crude oil inventories typically decline at this time of year for tax avoidance purposes.

On the consumer side, the outlook is mixed. Gasoline inventories in the United States rose as implied demand plunged nearly half a million barrels a day last week. The Chinese city of Xi’an is tightening virus rules in an attempt to curb an outbreak, local media reported, but so far, omicron’s impact on global demand has been fairly limited.

However, an energy crisis in Europe and supply disruptions from Libya and Nigeria reinforced bullish sentiment. The weak dollar also supported oil. A weaker greenback makes oil cheaper for holders of other currencies.

Trade begins to decline around Christmas time. Average Brent crude futures volumes over the past 15 days are the lowest in two months, while WTI’s open interest has plunged to its lowest level since 2016. “The holidays can be dangerous on the market, “said Phil Flynn, senior market analyst for Price Futures Group. . “We saw some crazy movements on a light volume. “

Relax

Oil is on the verge of peaking year-on-year gain following a rebound in the pandemic, but the rally has weakened over the past two months in part due to demand concerns following the emergence of the omicron . There are some signs of slowing consumption in Asia and the crude market structure has weakened significantly, indicating short-term oversupply.

The energy crisis in Europe, meanwhile, has raised the prospect of increased demand for petroleum products in power generation. Natural gas prices surged after Russia slashed flows, forcing France to increase imports of electricity and burn oil to keep the lights on. U.S. Gulf Coast refiners have also cut back on diesel shipments to Europe to prioritize domestic demand and Latin American buyers.

In the near term, geopolitical issues could provide some support for an oil recovery, especially given tensions in Europe in response to natural gas deliveries from Russia, Flynn said.

Prices:

  • West Texas Intermediate for February delivery rose $ 1.64 to $ 72.76 per barrel in New York
  • Brent for February settlement rose $ 1.31 to $ 75.29, two-week high


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