The black liquid is bullish in the London session today as it extends its biggest one-day gain this year as the U.S. Federal Reserve is likely to raise interest rates more slowly than expected and industry estimates showed a draw in US stockpiles.
The global benchmark, the Brent crude futures is up 0.45%, currently trading at $84.10 a barrel, after jumping 3.5% in the previous session. While the United States’ benchmark, the West Texas Intermediate (WTI) crude futures is up 0.65%, to $81.75 a barrel, after jumping 3.8% in the previous session.
West Texas Intermediate traded above the $80 trading range after rallying 3.8% on Tuesday. The industry-funded American Petroleum Institute reported that U.S. crude inventories sank by about 1 million barrels last week, according to people familiar with the figures. The snapshot also showed a drop in crude at the key storage hub in Cushing, although gasoline holdings jumped.
What you should know
- The black liquid’s rally on Tuesday is the highest close since November and it came alongside gains in raw materials and equities after Federal Reserve Chair Jerome Powell sought to reassure investors that the central bank can rein in inflation without damaging the U.S. economy. If he succeeds, that will safeguard oil demand.
- In his congressional confirmation hearing, Powell said the Fed was on course to begin raising interest rates and reducing its mammoth balance sheet. Data due later Wednesday will probably show U.S. consumer prices rose 7% in December, according to the median forecast of economists surveyed by Bloomberg.
- Oil has roared higher in the opening days of the new year as concerns about the pandemic, especially the impact of the omicron variant, have eased off. At the same time, stockpiles have extended declines, suggesting a tighter market, and several OPEC+ producers like Nigeria and Libya have seen interruptions to supply.
What they are saying
Howie Lee, an economist at Oversea-Chinese Banking Corp. in Singapore stated, “There are a lot of supply factors and omicron fears are ebbing. The market will remain tight for a while. Wherever the market is right now has just started to reflect oil’s fair value and there is still more to run.”
Leona Liu, an analyst at Singapore-based DailyFX stated, “While Powell reassured the Fed will bring down rising inflation, which strengthened the rate hike outlooks in March, he also said the Fed is capable of leaving strong economic growth intact. That may lift the demand for growth-sensitive crude oil.”
Madhavi Mehta, commodity research analyst at Kotak Securities stated, “The way (Omicron) cases are rising, it does not look the situation may get better soon. However, it fails to impact financial markets and oil much as countries are not likely to resort to severe lockdowns.”
Bottomline
Investors are now looking forward to the official data on U.S. oil stockpiles expected later today from the Energy Information Administration. Should they confirm a drop, it would be a seventh successive fall.
Still, concerns remain about omicron, especially in China, where authorities are cleaving to a Zero-Covid policy that seeks to stamp out the virus through localized lockdowns. Goldman Sachs Group Inc cut its forecast for the nation’s economic growth this year to 4.3% due to the increased difficulty of containing the more-contagious variant.
