Oil Prices Hit Two-month High due to Tight Supply

Oil prices hit their highest levels in two months on Wednesday due to tight supply and easing concerns about the potential demand impact of the Omicron variable of the coronavirus, according to Reuters.

Federal Reserve Chairman Jerome Powell said on Tuesday that the economy of the United States, the largest consumer of oil in the world, must overcome the current wave of coronavirus with “short-term” effects only, and that it is ready to start a tighter monetary policy.

Brent crude futures rose 42 cents, or 0.5% to $84.14 a barrel. US West Texas Intermediate (WTI) crude futures rose 60 cents, or 0.7%, to $81.82 a barrel. Both contracts are set for the sixth session of the eight winnings.

Stocks, which often move in tandem with oil prices, also rose, while a weaker dollar, which made dollar-denominated oil contracts cheaper for holders of other currencies, also provided support.

The Brent contract shows an increasing decline with front-month delivery more expensive than six-month delivery at about $4.20, indicating tight supply at the moment.

OPEC+ oil producers continue to curb production of more than 3 million barrels per day, while sanctions against Iran are hampering its exports.

And although OPEC+ producers raise their production targets every month, technical difficulties have prevented many countries from achieving their quotas.

“Assuming China is not experiencing a sharp slowdown, and Omicron is in fact taking a hit, and with OPEC+ ability to ramp up production clearly limited, I see no reason why Brent crude should not move towards $100.00 in the first quarter,” said Oanda analyst Jeffrey Haley.

He added: "There are a lot of variable results in the previous sentence, the biggest threat is Omicron in China, India and Indonesia."

Meanwhile, European jet fuel refining margins are back to pre-pandemic levels as supplies tighten in the region and global aviation activity recovers.

US crude stocks fell 1.1 million barrels for the week ending January 7, according to market sources, citing figures from the industry group of the American Petroleum Institute. Government figures are due to be released on Wednesday.

The US Energy Information Administration on Tuesday raised its forecast for oil demand, seeing US demand rise by 840,000 barrels per day in 2022, up from a previous forecast for a 700,000 barrel per day increase.