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Picture: REUTERS
Picture: REUTERS

London — Oil prices hit two-month highs on Wednesday on tight supply and easing concerns about the impact of the Omicron variant of the coronavirus on demand.

In testimony before Congress on Tuesday, Federal Reserve chair Jerome Powell said the US economy, the world’s biggest oil consumer, should weather the latest Covid surge with only “short-lived” effects and was ready for the start of tighter monetary policy.

Brent crude futures were up 34c, or 0.4%, at $84.06 a barrel at 9.18am GMT. West Texas Intermediate was up 49cs, or 0.6%, to $81.71 a barrel. Both contracts are set for their sixth session of gains out of eight.

Brent is experiencing growing backwardation, with front-month delivery about $4.20 more expensive than delivery in six months, indicating tight supply now.

Opec+ producers continue to hold back more than 3-million barrels per day in output, while sanctions on Iran are pinning down its exports.

Though Opec+ producers are raising their output targets each month, technical difficulties have prevented several countries from reaching their quotas.

“Assuming China doesn’t suffer a sharp slowdown, that Omicron actually becomes omi-gone, and with Opec+’s ability to raise production clearly limited, I see no reason why Brent crude cannot move towards $100 in Q1, possibly sooner,” said Oanda analyst Jeffrey Halley.

“There are plenty of variable outcomes in the previous sentence, the biggest threat being Omicron in China, India, and Indonesia.”

European jet fuel refining margins are back to pre-pandemic levels as supplies in the region tighten and global aviation activity recovers.

US crude stocks fell by 1.1-million barrels for the week ended January 7, according to market sources citing figures from the American Petroleum Institute industry group.

Government figures are due on Wednesday.

On Tuesday, the US Energy Information Administration upgraded its oil demand outlook, forecasting that US demand would rise by 840,000 bbl/day in 2022, up from a previous forecast for an increase of 700,000 bbl/day. 

Reuters

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