(Bloomberg) — Oil prices rose on Tuesday following the biggest one-day tumble this year, with traders refocusing on the outlook for energy demand and shaking off broader weakness in financial markets.
West Texas Intermediate futures traded near $85 a barrel as fears about fresh lockdowns and a hit to global demand due to the omicron variant eased. Prices have whipsawed as the U.S. Federal Reserve prepares for interest-rate increases and Russia builds troops along the border with Ukraine.
“Oil prices will remain bullish through the end of February, but bearish blips are expected throughout the year as investors cash out and move into the strengthening U.S. equities market, which should benefit from some momentum following tomorrow’s Fed meeting,” said Louise Dickson, Rystad Energy’s senior oil markets analyst.
In recent months, oil bears have retreated with speculators turning more bullish amid lower stockpiles. Crude rallied to a seven-year high last week as global consumption remained strong in the face of the fast-spreading, but milder, omicron variant. While inventories usually grow early in the year, traders are fretting that by the Northern Hemisphere’s summer, when demand typically rises, stockpiles may be too low to prevent a jump in prices.
Also see: Oil Buyers Snap Up Diesel-Rich Crude as Omicron Fears Abate
“Markets have proved to be tighter than we thought,” said David Martin, head of commodity desk strategy at BNP Paribas. He see small reductions in inventories this quarter, “and that underpins this view that the market continues to tighten up.”
Inventories in key regions have tightened with stockpiles at Cushing, Oklahoma, the delivery point for benchmark U.S. crude futures, sliding to the lowest levels in more than five years seasonally.
The U.S. is putting thousands of soldiers on alert for deployment to Eastern Europe. The risk of a Russian invasion of Ukraine in the next few weeks stands at more than 50%, according to RBC Capital Markets analyst Helima Croft. Disruption to oil flows from Russia could easily send prices to $120 a barrel, JPMorgan Chase & Co. wrote last week.
Costlier oil is helping fan inflationary pressures worldwide, prompting central banks to tighten monetary policy and forcing governments to take steps to cushion the impact on consumers. On Tuesday, Japan said it will give subsidies to refiners in a bid to curb gasoline prices.
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