Oil Jumps on Forecast for Decline in US Crude Inventories

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are soaring on Tuesday, putting them in a position to challenge their October contract highs. The catalysts behind the price surge are expectations of a seventh straight week of declines in U.S. crude stockpiles

According to analysts surveyed by Bloomberg, U.S. crude stockpiles are expected to decrease by 1.7 million barrels for the week-ending January 7. The industry-funded American Petroleum Institute (API) will release its estimates at 21:30 GMT on Tuesday, while the official U.S. Energy Information Administration (EIA) numbers will come out on Wednesday at 15:30 GMT.

At 16:59 GMT, March WTI crude oil futures are trading $80.46, up $2.76 or +3.55% and March Brent crude oil is at $83.46, up $2.59 or +3.20%. The United States Oil Fund ETF (USO) is at $58.02, up $1.86 or +3.31%.

Bullish Supply/Demand Factors

The markets are being underpinned by tight supply and expectations that rising coronavirus cases and the spread of the Omicron variant will not derail a global demand recovery. Furthermore, a lack of capacity in some countries has meant that supply additions by OPEC are running below the allowed increase under a pact with its allies.

Meanwhile, buyers are heeding the words of Federal Reserve Chair Jerome Powell on Tuesday who said he expects the economic impact of the Omicron variant to be short lived, adding that ensuing quarters could be very positive for the economy after Omicron subsides.

Daily Outlook

A weaker U.S. Dollar is also helping to support oil because it makes dollar-denominated crude cheaper for buyers holding other currencies and tends to reflect higher risk appetite among investors.

Later today at 21:30 GMT, look for a reaction to the API report. It is expected to show a draw of 2 million barrels.

Meeting or exceeding this level could trigger a breakout to the upside to new contract highs.