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Oil futures rose Tuesday and U.S. prices traded above $80 a barrel, supported by tight supplies and growing expectations that the omicron variant of the COVID-19 virus won’t derail global demand.
The market theme is “about demand recovery rather than supply concerns, although both are supportive of oil prices,” Manish Raj, chief financial officer at Velandera Energy Partners, told MarketWatch. Despite omicron’s spread, “global oil demand remains robust among all modes of transportation.”
West Texas Intermediate crude for February delivery
CL00
CLG22
rose $2.56, or 3.3%, at $80.79 a barrel on the New York Mercantile Exchange. Front-month contract prices haven’t settled above $80 since Nov. 16, FactSet data show.
March Brent crude
BRN00
BRNH22,
the global benchmark, rose $2.27, or 2.8%, to $83.14 a barrel on ICE Futures Europe. A settlement around that level would be highest since Nov. 11.
WTI and Brent have both rallied more than 5% so far in 2022.
Among the petroleum products, February gasoline
RBG22
rose 1.8% to $2.315 a gallon and February heating oil
HOG22
added 1.2% to $2.518 a gallon.
“Even though oil prices have recovered somewhat in the last few days, they are still below pre-omicron levels.,” Raj said. “If traders can write off [the] omicron induced sell-off, then prices will revert to the mid-$80s.”
Tuesday’s gains came despite reports that production in Libya had recovered and that activity at Kazakhstan’s Tengiz oil field had returned to normal. Worries about hits to production in the two countries had helped to lift crude last week.
Oil production in Libya has returned to 1 million barrels a day after militias lifted a three-week blockade of oil fields, including the nation’s largest, Bloomberg reported. Chevron Corp.
CVX,
which leads the Tengizchevroil consortium, said production at Kazakhstan’s 600,000-barrel-a-day Tengiz oil field has returned to normal after being disrupted by unrest last week, according to Argus.
While exports from the Libya’s western oil ports are likely to begin again soon, exports “from most of Libya’s other oil ports have been suspended due to bad weather this week, meaning that the higher oil production in the country has not yet translated directly into an increase in available oil supply,” said Carsten Fritsch, commodity analyst at Commerzbank, in a note. “This may explain why oil prices have not responded as yet to the reopening of the Libyan oil fields.”
Traders are also closely watching tensions within Kazakhstan but there has not been any meaningful impact to oil production, said Velandera Energy’s Raj.
“Traders are factoring in a low likelihood of widespread production disruptions,” he said. “Since Kazakhstan has consistently exceeded its OPEC+ quota, a small disruption will only bring it back to compliance.”
OPEC+, which comprises the Organization of the Petroleum Exporting Countries and their allies, saw production quota compliance rise to 116.5% in December, but the 19 members subject to the output targets pumped some 620,000 barrels per day below their combined caps, according to an S&P Global Platts survey released Tuesday.
The report on the survey results said Platts Analytics still expects the market to be oversupplied in the first three months of the year but estimates OPEC+ sustainable spare production capacity will shrink to 800,000 b/d by June if it maintains its monthly quota rises, creating “an uncomfortably thin market buffer in the second half of the year.”
Meanwhile, tensions between Russia and Ukraine “effects natural-gas volatility, but not so much oil prices, as Ukraine is the main channel to transport Russian gas to Western Europe,” Raj said.
On Nymex, February natural gas
NGG22
traded at $4.062 per million British thermal units, down 0.4% after climbing by more than 4% Monday.
Weekly data on U.S. petroleum supplies will be released on Wednesday. On average, analysts polled by S&P Global Platts forecast a decline of 1.6 million barrels in U.S. crude supplies for the week ended Jan. 7. They also expect to see inventory increases of 3 million barrels for gasoline and 2 million barrels for distillates.
