Oil extends gains after Fed comments

Melbourne — Oil prices climbed on Wednesday, extending big gains in the previous session after the US Federal Reserve chief signalled the central bank may raise rates more slowly than expected, which should support oil demand in the near term.

Benchmarks Brent and US West Texas Intermediate (WTI) are trading at their highest levels since the super contagious Omicron variant of the coronavirus emerged in late November, as it has not hit fuel demand the way previous variants did.

WTI crude futures rose 38c, or 0.5%, to $81.60 a barrel at 2.24am GMT, adding to a 3.8% jump in the previous session.

Brent crude futures gained 22c, or 0.3%, to $83.94 a barrel, after jumping 3.5% in the previous session.

Federal Reserve chair Jerome Powell said on Tuesday the economy should withstand the current Covid-19 surge with only “short-lived” effects and said “it is a long road” to anything close to restrictive monetary policy.

“A long road to normal means the economy will still see a lot of support over the first half of the year and that is good news for crude prices,” said Oanda analyst Edward Moya.

Data from the American Petroleum Institute (API) industry gave a weaker picture on fuel demand, with a smaller decline in crude stockpiles than expected and bigger builds than expected in petrol and distillate inventories.

Crude stocks fell by 1.1-million barrels for the week ended January 7, according to market sources citing API figures. That was less than the 1.9-million barrel draw that 10 analysts polled by Reuters had expected.

Petrol stockpiles rose by 10.9-million barrels, compared with analysts’ expectations for a 2.4-million barrel build. Distillate inventories, which include diesel and heating oil, rose by 3-million barrels compared with forecasts for a 1.8-million barrel increase.

However, buoying the market was the US Energy Information Administration’s upgraded oil demand outlook released on Tuesday, seeing total US demand rising by 840,000 barrels a day (bbl/day) in 2022 from last year, up from a previous forecast for an increase of 700,000.

At the same time, the EIA pared its production outlook for 2022, expecting US oil output to rise by 640,000bbl/day, down from an earlier forecast for an increase of 670,000bbl/day.

Reuters