(Bloomberg) — Oil extended gains after data showed U.S. crude stockpiles fell last week amid thin trading volumes ahead of the holiday.
Futures in New York traded above $72 a barrel, gaining support midday from a rise in broader equity markets. Prices got a boost earlier Wednesday after data from the U.S. Energy Information Administration showed crude inventories declined by 4.72 million barrels last week as imports fell.
“The report was modestly bullish, due to the large crude oil inventory drawdown,” said John Kilduff, a partner at Again Capital LLC. “However, at this time of year, crude oil inventories get drawn for tax avoidance purposes.”
On the consumption side, the outlook is mixed. Gasoline stockpiles in the U.S. climbed as implied demand plunged by nearly 500,000 barrels a day last week, prompting some worries about the impact of the omicron variant during the holiday season. The Chinese city of Xi’an is tightening its virus rules in a bid to curb an outbreak, local media reported, but so far the impact of omicron on global demand has been fairly limited.
An energy crunch in Europe and disruptions to supply from Libya and Nigeria added to bullish sentiment. Weakness in the dollar also lent support to oil. A weaker greenback makes oil less expensive for holders of other currencies.
Trading is starting to wane into the Christmas period. Average Brent crude futures volumes over the last 15 days are the least in two months, while WTI open interest has plunged to its lowest since 2016.
“Data remains supportive, with supply outages, elevated flight activity and congestion on roads resulting in still falling inventories,” said Giovanni Staunovo, commodity analyst at UBS Group AG. “Concern on new mobility restrictions impacting oil demand as a result of the omicron variant is keeping prices in check, however.”
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 omicron. There are some signs of softening consumption in Asia and crude market’s structure has weakened significantly, indicating over-supply in the near term.
Still, South Africans contracting Covid-19 are 80% less likely to be hospitalized if they catch the omicron variant, compared with other strains, according to one study. U.S. President Joe Biden’s administration expects to take delivery of 4 million courses of Covid treatments by the end of January, according to officials familiar with the matter.
Europe’s energy crunch, meanwhile, has raised the prospect of greater demand for oil products in power generation. Natural gas prices surged after Russia curbed flows, forcing France to boost electricity imports and burn oil to keep the lights on. U.S. Gulf Coast refiners have also trimmed diesel shipments to Europe to prioritize domestic demand and buyers in Latin America.
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