(Bloomberg) — Oil erased gains stemming from a government report that showed U.S. crude inventories dropped, unable to withstand pressure from a wobbly stock market.
West Texas Intermediate fell after rising as much as 1.8% to briefly trade above $76 a barrel on Wednesday. U.S. stockpiles fell 3.58 million barrels last week, according to government data. Crude production continues to tick forward steadily but is still well short of where it stood when the pandemic forced the industry to slam the brakes on output.
Still, crude futures have almost recovered all the ground lost since the end of November when the discovery of the omicron variant sent markets reeling. Despite rising infections, the milder-seeming variant has so far not dented mobility in the U.S.
“Consumer behavior relating to oil demand is not being impacted by any concerns about omicron,” said Rob Thummel, a portfolio manager at Tortoise, a firm that manages roughly $8 billion in energy-related assets. The “trifecta” of declines in of gasoline, distillate, and crude inventories is being interpreted by the markets as “a bullish sign for oil,” he said.
Crude is heading for its biggest annual gain in more than a decade after global consumption recovered from the pandemic with the roll-out of vaccines. That helped to deplete once-bloated oil inventories, especially in the U.S., as crude inventories have dropped for the fifth consecutive week, the longest run of draws since September.
Investor worries about omicron are easing on growing evidence that the variant is milder in nature, potentially reducing the need to impose restrictions on movement. The rapid spread of omicron has yet to hit road traffic across most of Asia, mobility data compiled by Bloomberg show. In the U.S., consumer demand is also rising, with gasoline stockpiles falling the most in over a month, according to the an Energy Information Administration report.
Oil’s recovery has also been supported by the Organization of Petroleum Exporting Countries and allies including Russia taking a cautious approach to restoring output. The group is due to meet next week to assess policy heading into 2022. Ahead of that gathering, Russian Deputy Prime Minister Alexander Novak said the country is comfortable with prices between $65 and $80 a barrel.
There was also the potential for bullish technical momentum, after Brent on Tuesday closed above its 50-day moving average for the first time in a little over a month. That was the latest notable milestone in the market’s recovery from a rout late last month.
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