By Barani Krishnan
Investing.com - Oil rallied for a second day in a row Wednesday after data showing a sharp drop in weekly stockpiles of U.S. crude allowed bulls in the market to claw back all they lost in Monday’s sell-off triggered by fears over Covid’s Omicron variant.
Also supporting oil were production outages in Libya that forced the North African country to declare force majeure on crude exports from two of its ports.
West Texas Intermediate, the benchmark for U.S. crude, settled up $1.64, or 2.3%, at $72.76 a barrel, adding to Tuesday’s 4% gain. The two-day rally helped WTI to recover all of Monday’s 3.7% drop.
London-traded Brent, the global benchmark for oil, was up $1.51, or 2%, at $75.47 a barrel by 2:43 PM ET (19:43 GMT), after Tuesday’s rise of 3.4%. On Monday, Brent lost 2.7%.
U.S. crude inventories fell 4.72 million barrels during the week to Dec. 17, the Energy Information Administration said in its weekly Petroleum Status Report. It was the largest weekly crude draw since September and added to the 4.58-million slide in the previous week to Dec. 10.
Industry analysts tracked by Investing.com forecast a decline of just around 2.5 million barrels for last week.
But stockpiles of gasoline rose even more than the drop registered in crude.
Gasoline inventories rose by 5.53 million barrels last week, their most since a 7.5 million-barrel build during the week to June 7.
Analysts had expected gasoline inventories to rise by just 65,000 barrels for the just-ended week, putting what the EIA reported at least eight times higher than projections. In the previous week, gasoline stockpiles drew down by 719,000 barrels.
The EIA report also showed that inventories of distillates, which are refined into diesel and jet fuel, among other fuel products, rose by 396,000 barrels last week versus a projected drop of 250,000. In the previous week, distillate stocks fell by 2.85 million.
But it was the huge gasoline build that raised eyebrows among some traders who attributed it to the likely slump in fuel demand amid last week’s breakout in Omicron cases across major U.S. cities.
“It’s really quite stunning to see this build in gasoline and the drop in fuel demand that it suggested for last week and how that’s correlating with the spike in Omicron caseloads,” said John Kilduff, founding partner at Again Capital, an energy hedge fund in New York.
The Omicron is now the dominant COVID strain in the United States, accounting for more than 73% of new coronavirus cases last week, according to the Centers for Disease Control and Prevention.
Major U.S. cities, including New York, Los Angeles and Chicago, have announced mass cutbacks in activity and introduced various new restrictions to deal with the threat of the variant. President Joe Biden has also warned that Americans who do not get vaccinated against the virus face “a winter of severe illness and death”.
Oil prices have fallen from 2021’s highs since the emergence of the Omicron variant in November.
Brent fell from seven-year highs of $86.70 a barrel in mid-October to as low as $65.80 over the past two months, before settling into a range of between $71 and $75 now.
Despite the price slump and threats of a resurgence in the pandemic, global oil producers have so far played down risks from the Omicron.
OPEC+ — a 23-nation oil producing alliance led by the 13-member OPEC under Saudi Arabia and 10 others non-OPEC countries steered by Russia — says the Omicron is unlikely to become as disruptive to energy demand as the original Covid-19 strain that broke out in 2020.