Crude oil prices climb about 4%, here’s why

By Angel One | Published on 12 January 2022 | 181

Crude oil prices climb about 4%, here’s why

On Tuesday, the oil prices jumped almost 4% as supply concerns eased and expectations of smoothly running operations boosted. The positive push came from the anticipation that the spread of the Omicron variant would not disrupt the global recovery. US WTI saw the biggest one-day percentage rise since November 2021.

Brent crude rose above $83.70 a barrel for the first time in eight weeks. It went up by $2.85, which is 3.5% compared to its previous close where it had closed 1% lower. On the other hand, the prices of US West Texas Intermediate (WTI) climbed to $81.20 which is 3.8% higher than the previous close.

Weak Impact of Omicron Variant

Powell, the US Fed Reserve Chairperson believes that the Omicron variant is expected to have a short-lived impact on the economy. Major disruption is not expected to take place with the new variant spread. He added that the coming quarters can be positive once the Omicron variant effect is gone.

Omicron has yet to surpass what the Delta variant has done. There is a probability that it may not do so in the long run, which is beneficial for global recovery.

Demand and Supply Affecting Oil Prices

Brent crude oil prices rose by around 50 pc in the calendar year 2021, as global demand recovered from its worst recession in decades. Since the beginning of 2022, the prices have still not stopped rallying.

In 2020, the Organization of Petroleum Exporting Countries (OPEC) nations had reduced the supply as demand had dramatically fallen. However, in 2021, the demand went back to normal but the supply is still lesser compared to pre-pandemic levels. This is pushing the crude prices up.

The lack of capacity in some members of the OPEC has kept the group’s supply additions below its target. The recent outages in Libya have also supported prices, with the National Oil Corp halting its export operations.

A combination of factors, including the recovery in global demand and the possibility that the supply glut will not be as powerful as expected, has supported prices.

Other Global Factors

US commercial crude stockpiles declined by 1.1 million barrels last week, which was less than the expected draw of 2 million barrels. European refiner stocks dropped by over 11 percent in December from a year earlier, while jet fuel margins are back to pre-pandemic levels.

The US government lowered its oil production growth estimates and raised its oil demand forecast. It expected US production to rise by 640,000 barrels per day (BPD) in 2018, lower than the previous month’s estimate of 670,000 BPD.

It now expects total oil demand to rise by 840,000 barrels per day in 2018, up from its previous estimate of 800,000 barrels per day.

FAQs

What is US WTI?

US West Texas Intermediate (WTI) is a type of crude oil that’s usually referred to as light sweet oil. It has a low density and is made up of 0.3% sulfur. WTI is the commodity that’s used to price oil futures contracts on the New York Mercantile Exchange. It’s usually compared to Brent crude, which are the oil prices used by many international oil companies.

How different is WTI from Brent crude?

West Texas Intermediate is the United State of America’s main crude oil price, while Brent is based on the oil exported by the OPEC countries. Since India’s oil demand is fulfilled by importing it from the OPEC countries, we use Brent crude prices as a benchmark for fuel prices.

What are OPEC countries?

OPEC stands for Organization of Petroleum Exporting Countries. It is a cartel of oil-producing and exporting countries. Currently, there are 13 member countries in OPEC. India imports Brent crude oil from these countries.

Disclaimer: This blog is exclusively for educational purposes and does not provide any advice/tips on investment or recommend buying and selling any stock.