Oil rose as traders weighed a bigger-than-expected drop in U.S. crude stockpiles against the rising output from American fields.
West Texas Intermediate closed up 0.8% to $76.56 a barrel on Wednesday, after earlier climbing almost 2%. The initial bump was triggered by a U.S. government tally that showed inventories shrank by 3.58 million barrels last week even as domestic crude output rose to the highest since May 2020.
Benchmark U.S. crude futures have almost recovered all the ground lost since the late November emergence of the latest Covid-19 variant dimmed the outlook for energy demand. Despite rising infections, the milder omicron strain has so far not dented mobility in the world’s largest economy.
“Consumer behavior relating to oil demand is not being impacted by any concerns about omicron,” said Rob Thummel, a portfolio manager at Tortoise, a firm that manages roughly $8 billion in energy-related assets.
Crude is heading for its biggest annual gain in more than a decade after global consumption recovered from the pandemic with the roll-out of vaccines. That helped deplete once-bloated oil inventories, especially in the U.S., where stockpiles dropped for the fifth consecutive week, the longest run of withdrawals since September.
Investor worries about omicron are easing on growing evidence that the variant is milder in nature, potentially reducing the need to impose restrictions on movement. The rapid spread of omicron has yet to hit road traffic across most of Asia, mobility data compiled by Bloomberg show. In the U.S., consumer demand is also rising, with gasoline stockpiles falling the most in over a month, according to the Energy Information Administration report.
Oil’s recovery has also been supported by the Organization of Petroleum Exporting Countries and allies including Russia taking a cautious approach to restoring output. The group is due to meet next week to assess policy heading into 2022. Ahead of that gathering, Russian Deputy Prime Minister Alexander Novak said the country is comfortable with prices between $65 and $80 a barrel.
There was also the potential for bullish technical momentum after Brent on Tuesday closed above its 50-day moving average for the first time in a little over a month. That was the latest notable milestone in the market’s recovery from a rout late last month.