Bullish Sentiment Emerges As Strong Demand Defies Omicron Expectations

Meanwhile, Platts suggests supply may exceed demand next year: File Image/Pixabay

Although global market circumstances were virtually unchanged from previous sessions, crude traders on Wednesday displayed a newfound bullish sentiment following a big decline in U.S. stockpiles, by causing oil to settle at the highest level in nearly a month.

West Texas Intermediate settled $1.64 higher at $72.76 per barrel, while Brent settled up $1.31 at $75.29, on the strength of the Energy Information Administration reporting a crude inventories decline of 4.72 million barrels last week.

However, John Kilduff, founding partner at Again Capital, warned that inventories typically decline this time of year for tax purposes.

Prices were said to be also supported by rising home sales and consumer confidence signalling economic strength: yet more evidence running contrary to analytical worries that the ballyhooed omicron strain would ruin economic recovery and demand.

While fear mongering about omicron remains prevalent and bolstered by countries such as China reinstating varying degrees of lockdown, Bloomberg on Wednesday reported that the last piece of the puzzle of a complete demand recovery – air travel – is showing the first signs of robust revival, and that patterns suggest sustained recovery.

The nascent conviction among western traders that omicron may be far less destructive than initially feared also contributed on Wednesday to a lifting of markets in Asia, but Yeap Jun Rong, strategist at IG, observed that "While the bullish momentum from the US trading session may help lift sentiments into Asia's session today, the relatively quiet economic calendar may also put focus on developments in China's property sector and ongoing virus risks to reopening plans."

While the potential for COVID concern continued Wednesday, particularly with the UK recording record six-figure case numbers, a growing sense of analytical confidence can't be ignored. Edward Moya, senior market analyst at OANDA, said, "Both the U.S. and UK are not headed to lockdowns, and that suggests the short-term outlook might not get completely derailed by the omicron variant."

Meanwhile, S&P Global Platts Analytics said it expected supply to catch up and even exceed demand growth in 2022 thanks partly to higher output of shale oil in the U.S. and the return of investment.

It also said that oil prices would start to rebalance and normalize in the first quarter as inventories recover.