Oil prices drop as Omicron’s global drag increases fueling demand view

Oil pump cranes at the Vaca Muerta oil and shale gas field in the Patagonian province of Neuquén, Argentina, January 21, 2019. REUTERS/Agustin Markarian/File Photo

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  • US crude stocks fall to their lowest levels in 2018 -EIA
  • Gasoline stocks rose last week – EIA

MELBOURNE (Reuters) – Oil prices fell on Thursday, paring significant gains from the previous two sessions, amid uncertainty over near-term demand as cases of the highly contagious Omicron type of coronavirus emerged worldwide.

US West Texas Intermediate crude futures were down 43 cents, or 0.5 percent, at $82.21 a barrel at 0728 GMT, after rising 1.7 percent in the previous session.

Brent crude futures fell 44 cents, or 0.5 percent, to $84.23 a barrel, after rising 1.3 percent on Wednesday.

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Data from the US Energy Information Administration showed on Wednesday that fuel demand took a hit from Omicron, with gasoline stocks increasing by 8 million barrels in the week ending Jan. 7, compared to analysts’ expectations for a 2.4 million barrel increase. Read more

“Gasoline demand has been weaker than expected and still below pre-pandemic levels, and if this becomes a trend, oil will not be able to continue rising,” OANDA analyst Edward Moya said in a note.

However, Moya added, the short-term effect of Omicron is expected to continue.

The market had earlier benefited from a larger-than-expected drop in crude oil inventories and the fact that inventories are at their lowest since October 2018, which pushed Brent and West Texas Intermediate to two-month highs on Wednesday.

“In fact, the weekly EIA report was less optimistic than the headline figure, with total crude oil inventories declining by 4.8 million barrels, but more than offset by an increase in inventories across refined products,” Citi said in a note.

The bank added that the decline in crude stocks “may have been related to year-end tax issues on onshore oil stocks in Texas and Louisiana.”

However, US supplies are set to rise as producers pave the way for faster production by expanding well completions in the country’s largest shale oil field, the Permian Basin in West Texas and New Mexico, according to research data. Read more

Separately, concerns about inflation pressing the Federal Reserve to speed up the timetable to start raising interest rates are weighing on the markets. Read more

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(Reporting by Sonali Paul and Florence Tan) Editing by Tom Hogg and Christian Schmolinger

Our Standards: Thomson Reuters Trust Principles.

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