Oil prices rallied today with WTI erasing all of the post-Omicron losses after OPEC+ agreed to revive more halted production as the outlook for global oil markets improved, with demand largely withstanding the new coronavirus variant.
Global fuel consumption continues to recover from 2020’s collapse. There’s rising traffic and factory activity across key Asian consuming countries and dwindling crude inventories in the U.S., buoying oil prices to nearly $80 a barrel in London.
“The monitoring and analysis show that despite the high level” of Covid-19 infections, “the level of hospitalization is quite low and it isn’t dampening demand,” Russia’s Deputy Prime Minister Alexander Novak said in an interview with state-run Rossiya 24 TV after the meeting.
As Bloomberg reports, OPEC+ has already restarted about two-thirds of the production they halted in the early stages of the pandemic. They are seeking to drip-feed the remainder at a pace that will satisfy the recovery in fuel consumption — and stave off any inflationary price spike — without sending the market into a new slump.
But for now, all eyes will be on API’s inventory data
Crude -6.432mm – biggest draw since Aug 2021
Gasoline +7.061mm – biggest build since April 2020
Distillates +4.38mm – biggest build since June 2021
Shockingly large numbers from API last week with a big crude draw and major builds in products…
WTI was hovering around $77 ahead of the API print…
One thing of note is that the flotilla of LNG from the US has drastically slashed European NatGas prices but in oil barrel equivalents there is still demand for substitution…
The outlook is not all as one way as price and OPEC+ would seems to suggest as air travel saw significant disruption in the U.S. last week, with more than 1,300 flights canceled on Friday and 1,000 scrubbed for Saturday as carriers struggled with staff shortages related to coronavirus infections.
China, Asia’s biggest oil user, has shown signs of weakening fuel demand because of its relentless zero-Covid approach and tough line on pollution, according to road-congestion data from local providers like Baidu Inc.
Even if OPEC+ sticks with its modest increase, prices will likely remain capped at $80 a barrel, says Ipek Ozkardeskaya, senior analyst at Swissquote.
“Even with the idea that better days are ahead of us and recovery should support better demand in oil, the IEA has been warning of a larger global glut in the first months of the year,” she says.