(Bloomberg) — Oil extended gains after an industry report pointed to another decline in U.S. crude inventories, while an energy crunch in Europe raised the prospect of greater demand for crude products in power generation.
Futures in New York advanced toward $72 a barrel after rallying on Tuesday with other financial assets following a two-day slump. The American Petroleum Institute reported crude stockpiles declined by 3.67 million barrels last week, according to people familiar with the figures. If confirmed by government data later on Wednesday, it would be a fourth weekly draw.
Natural gas prices in Europe surged after Russia curbed flows, forcing France — usually a power exporter — to boost electricity imports and burn oil to keep the lights on. Freezing temperatures are exacerbating the crunch.
Oil is poised to cap a yearly gain following a rebound from the pandemic, but the rally has faltered over the past couple of months in part due to demand concerns after the emergence of the omicron variant of the virus. There are some signs of softening consumption in Asia and the crude market structure has weakened significantly, indicating over-supply in the near term.
“The ebb and flow of omicron fears will continue to buffet crude, with thinner trading activity over the year-end amplifying volatility,” said Vandana Hari, the founder of Vanda Insights in Singapore. “Day-on-day price swings of 2%-to-4% may remain the norm this week and the next.”
U.S. gasoline stockpiles increased by 3.7 million barrels last week, while crude inventories at the key storage hub of Cushing rose by 1.27 million barrels, the API reported on Tuesday. Distillate supplies declined. The Energy Information Administration is expected to report nationwide crude stockpiles fell by 2.5 million barrels, according to a Bloomberg survey.
Europe’s energy crisis is deepening just as omicron spreads through the region, darkening the economic outlook. A diesel crunch in Europe, meanwhile, is getting no relief from U.S. Gulf Coast refiners, which are prioritizing domestic demand and buyers in Latin America.
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