Oil prices rally on lower inventories, shielding Omicron from cautiousness

By David Gaffen

NEW YORK (Reuters) – Oil prices rose on Wednesday after a larger-than-expected drop in U.S. inventories, allaying concerns about the likely impact on economic activity of the spread of the Omicron coronavirus variant.

Brent crude futures ended the day up $ 1.31, or 1.8%, at $ 75.29 a barrel. US West Texas Intermediate (WTI) crude futures were at $ 72.76 per barrel, up $ 1.64, or 2.3%.

U.S. inventories fell more than expected, with crude inventories down 4.7 million barrels, although this was in part due to year-end tax considerations that encourage companies not to stockpile barrels of crude.

“We’ve seen a drop in production, we’ve seen inventory and crude drop, giving the market a good outlook,” said Phil Flynn, senior analyst at Price Futures Group in Chicago. “Because supplies are below average across the board, there isn’t much room for error.”

Mobility restrictions caused by coronaviruses across the world have added to fears of declining demand for fuel. Germany, Ireland, the Netherlands and South Korea are among the countries that have reimposed partial or full closures or other social distancing measures in recent days.

The recovery in the oil market could also be supported in part by the fact that European utilities have switched their energy source to heating oil from natural gas due to record prices on the continent.

“What we are seeing in natural gas in Europe is going to lead to a sustained shift from natural gas to oil to generate electricity,” said Andrew Lipow of Lipow Oil Associates in Houston. “This is an unforeseen demand that will persist over the next few months.”

It is still unclear whether the Omicron variant is more lethal than Delta, the strain that has dominated in recent months. A study in South Africa suggested the virus was less likely to send people to hospital than Delta, as governments around the world try to contain the rapid spread of the variant.

Moderna CEO Stéphane Bancel said on Tuesday that the vaccine maker does not expect problems in developing a booster to protect against the Omicron variant.

Pfizer, one of the leading manufacturers of COVID-19 vaccines, has said its COVID-19 antiviral pill is approved for home use. It targets people who have contracted the virus and is effective in reducing symptoms and hospitalizations, the company said.

(Reporting by David Gaffen; additional reporting by Stephanie Kelly and Laura Sanicola; Editing by Paul Simao and Cynthia Osterman)

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