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Tight supply and resilient demand keep oil around a two-month high.

by Seerat Fayaz   ·  January 15, 2022   ·  

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Oil has remained at a two-month high as demand withstands the omicron variety and supplies tighten, putting pressure on global markets. 

West Texas Intermediate settled above $82 per barrel as US oil stocks fell, contributing to an increasingly tight supply picture driven by outages and limits ranging from Libya to Nigeria to Russia. According to the International Energy Agency, consumption has shown to be extraordinarily durable, with the new virus strain causing just a little slowdown. 

WTI has risen about 10% since the start of 2022, joining other commodities in a solid start to the year on signs that consumption outside of Asia is generally rebounding from the epidemic.

According to the IEA, demand is better than predicted, but the latest EIA forecast shows that global oil stockpiles are likely to fall this quarter. This comes as oil inventories fell to their lowest level since 2018. 

According to Ed Moya, Oanda’s senior market analyst for the Americas, the low level of stocks might render the oil market vulnerable to price surges in the short term. “With robust growth in the United States and internationally, the oil market will stay reasonably tight as demand continues to exceed supply,” 

Nonetheless, as the fast-spreading omicron form sweeps over the area, road traffic has reduced across Asia at the start of the year.

According to Apple Inc. mobility statistics, fewer cars have passed through most major cities this month than in December. Containment attempts in China, which is dealing with an omicron outbreak, are causing significant economic harm. 

The market’s positive backwardated price structure reflects the market’s underlying confidence about the outlook, with near-term contracts holding above those farther out. The difference between WTI’s two closest December futures – one for 2022 and one for the same month the following year – was $6.46 per barrel. This is an increase from less than $5 at the end of last year. 

The year-to-date rise in oil prices, together with rises in other raw materials, will fuel inflationary pressures as central banks shift gears to combat growing pricing pressures.

The most important goal for the Federal Reserve, according to Federal Reserve Governor Lael Brainard, is to combat inflation while maintaining an inclusive recovery.

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