More Gains For Oil As IEA Admits Global Demand Far Stronger Than Calculated

Markets around the world continue to exhibit tightness: File Image/Pixabay

With demand for oil proving to be far stronger than even optimistic analysts predicted, crude prices on Wednesday enjoyed another upward bump, also supported by a huge drop in global stockpiles.

After the Energy Information Administration showed that global oil stockpiles declined by almost 3 million barrels per day (bpd) in December and that global oil inventories will decline slightly in the first quarter, prices for both West Texas Intermediate and Brent climbed, the former by 1.7 percent.

WTI rose $1.42 to settle at $82.64 per barrel, while Brent gained 95 cents to settle at $84.67 per barrel.

Gasoline inventories rose 7.69 million barrels last week, but the EIA pointed out that lower gasoline consumption is typical of a seasonal post-holiday lull.

Rebecca Babin, senior energy trader at CIBC Private Wealth Management, said, "Crude is trading with rose colored glasses; the fundamentals and technicals support this for now."

Also, the American Petroleum Institute reported a 1.08 million barrel draw in U.S. crude oil inventories, though gasoline and distillate stocks saw builds.

Earlier in the session, Fatih Birol, executive director of the International Energy Agency, told media that global demand has proven stronger than expected, helped along by omicron proving to be far milder than initially feared.

He said, "Demand dynamics are stronger than many of the market observers had thought, mainly due to the milder omicron expectations," and he added that "We see some of the key producers including Nigeria, Libya, and also Ecuador that have serious supply disruptions."

The IEA initially thought that world fuel consumption would slide by 740,000 bpd this quarter compared with the preceding three months due to omicron, and Fatih did not say whether this forecast would be revised.

Meanwhile in Asia, oil prices continued rising mid-morning in the aftermath of supportive remarks from U.S. Federal Reserve chair Jerome Powell, who in the previous session said the Fed would raise interest rates as needed to curb inflation, while reiterating that the economic recovery remained on track.

Yeap Jun Rong, market strategist at IG, said, "Overall, Powell's comments seem to imply that the Fed is in control of the economic situation, rather than being hand-tied by the elevated inflationary pressures."