Oil climbs on supply worries, limited impact from Omicron

Crude oil storage tanks are seen in an aerial photograph of the Cushing Oil Hub in Cushing, Oklahoma, U.S., April 21, 2020. REUTERS/Drone Base/File Photo

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  • Brent and WTI add more than 5% gains in previous week
  • Concerns over supply shortage and demand recovery drive prices higher
  • Concerns of a Russian attack on neighboring Ukraine persist
  • China agrees with US on release of oil-source reserves

SINGAPORE, Jan 17 (Reuters) – Oil prices rose on Monday, with Brent futures hitting their highest level in more than three years, as investors bet supply will remain tight amid production restricted by major producers with global demand undisturbed by the Omicron coronavirus variant.

Brent crude futures gained 40 cents, or 0.5%, to $86.46 a barrel at 0641 GMT. Earlier in the session, the contract hit its highest since October 3, 2018 at $86.71.

U.S. West Texas Intermediate crude rose 58 cents, or 0.7%, to $84.40 a barrel, after hitting $84.78, the highest since Nov. 10, 2021, earlier in the session.

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The gains followed a rally last week when Brent rose more than 5% and WTI more than 6%.

Rampant oil buying, driven by supply disruptions and signs that the Omicron variant won’t be as disruptive to fuel demand as expected, has pushed some crude grades to multi-year highs, suggesting the contract rally Brent futures could be held a bit longer, traders said. . Read more

“The bullish sentiment continues as (the producer group) OPEC+ is not delivering enough supply to meet strong global demand,” said Toshitaka Tazawa, analyst at Fujitomi Securities Co Ltd.

“If (investment) funds increase the allocation weight for crude, prices could reach their 2014 highs,” he said.

The Organization of the Petroleum Exporting Countries, Russia and their allies, known as OPEC+, are gradually easing production cuts implemented when demand slumped in 2020.

But many smaller producers cannot increase supply and others are reluctant to pump too much oil in the event of further setbacks from COVID-19. Read more

“The next thing to come is the rise in summer demand, particularly in Europe and the United States, which could be greater than last year, if the hopes growing around the Omicron transforming finally pandemic-to-endemic COVID is proving right,” said Vandana Hari, energy analyst at Vanda Insights.

Geopolitical threats to supply are also supporting bullish sentiment, Hari said.

U.S. officials on Friday expressed concerns that Russia is preparing to attack Ukraine if diplomacy fails. Russia, which has amassed 100,000 troops on the Ukrainian border, released photos of its forces on the move. Read more

The US government has held talks with several international energy companies on contingency plans to supply natural gas to Europe if the conflict between Russia and Ukraine disrupts Russian supplies, two US officials told Reuters on Friday. and two industry sources. Read more

U.S. crude oil inventories, meanwhile, fell more than expected to their lowest level since October 2018, but gasoline inventories jumped on weak demand, the Energy Information Administration said on Wednesday. . Read more

Concerns about supply constraints outweighed news of a possible release of oil from China’s reserves, Fujitomi analyst Tazawa said.

Sources told Reuters that China plans to release oil reserves around the Lunar New Year holiday between January 31 and February 6 as part of a plan coordinated by the United States with other major consumers. to reduce world prices. Read more

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Reporting by Yuka Obayashi in Tokyo and Roslan Khasawneh in Singapore; Editing by Kenneth Maxwell and Himani Sarkar

Our standards: The Thomson Reuters Trust Principles.

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