Oil Rises to Four-Week High as U.S. Crude Stocks Decline

Oil Holds Gains With Industry Report Pointing to Stockpile Drop

23 Dec 2021, 05:41 PM IST

Oil Rises to Four-Week High as U.S. Crude Stocks Decline

Extracted crude oil splashes on a worker’s hand as it’s being poured from a pipe. (Photographer: Dimas Ardian/Bloomberg)

(Bloomberg) -- Oil settled at the highest level in nearly a month after U.S. crude stockpiles decreased and economic data pushed equities higher.

West Texas Intermediate futures rose 2.3%, closing above $72 for the first time in two weeks. Prices got a boost after the Energy Information Administration reported crude inventories declined 4.72 million barrels last week. Meanwhile, rising home sales and consumer confidence signaled economic strength, blunting worries about omicron’s impact.

“The report was modestly bullish, due to the large crude oil inventory drawdown,” said John Kilduff, a partner at Again Capital LLC. Though he cautioned crude oil inventories typically decline this time of year for tax avoidance purposes.

On the consumption side, the outlook is mixed. Gasoline stockpiles in the U.S. climbed as implied demand plunged nearly half a million barrels a day last week. 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.

However, 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. “Holidays can be treacherous in the market,” said Phil Flynn, senior market analyst for Price Futures Group. “We have seen crazy moves on light volume.”

Oil’s Black Friday: Algos and Options Turn a Tumble Into a Crash

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 the crude market’s structure has weakened significantly, indicating over-supply in the near term.

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.

In the short-term, geopolitical issues could provide some support to a rally in oil, most notably from tensions in Europe in response to Russia’s natural gas deliveries, said Flynn.

Prices
West Texas Intermediate for February delivery settled $1.64 higher at $72.76 a barrel in New York Brent for February settlement rose $1.31 to settle at $75.29, highest in two weeks

Other oil-market news:
More than 23 million barrels of certain crude options traded since Dec. 10, suggesting a major player is hedging against lower oil prices to protect 2022 revenues. The moves were consistent with Petroleos Mexicanos’ annual oil price hedging program. U.S. sweet shale crudes this week reached the largest premiums against Nymex oil futures in nearly a year amid buying from U.S. refiners to meet healthy domestic fuel demand. Shell declared force majeure on shipments of crude oil from Forcados, one of Nigeria’s largest export terminals, according to a notification from NNPC seen by Bloomberg.

Other oil-market news:

More than 23 million barrels of certain crude options traded since Dec. 10, suggesting a major player is hedging against lower oil prices to protect 2022 revenues. The moves were consistent with Petroleos Mexicanos’ annual oil price hedging program.
U.S. sweet shale crudes this week reached the largest premiums against Nymex oil futures in nearly a year amid buying from U.S. refiners to meet healthy domestic fuel demand.
Shell declared force majeure on shipments of crude oil from Forcados, one of Nigeria’s largest export terminals, according to a notification from NNPC seen by Bloomberg.