U.S. West Texas Intermediate and international-benchmark Brent crude oil futures soared over 3.50% on Tuesday, boosted by tight supply and speculative bets that rising coronavirus cases and the spread of the Omicron variant will not derail a global demand recovery.
On Tuesday, March WTI crude oil futures settled at $80.67, up $2.97 or +3.82% and March Brent crude oil finished at $83.72, up $2.85 or +3.40%. Also on Tuesday, the United States Oil Fund ETF (USO) settled at $58.17, up $2.01 or +3.58%.
Support was provided early in the session on Tuesday after Federal Reserve Chairman Jerome Powell testified that the U.S. economy is strong enough to withstand Fed tightening and the current Omicron surge. This news was powerful enough to send both WTI and Brent crude oil futures to new contract highs.
Unfortunately, gains were capped into the extended close after a private-industry report showed crude oil stockpiles fell only slightly lower than expected and gasoline stockpiles rose sharply higher.
US Economy Strong Enough to Endure Tighter Fed Policy, Omicron Impact
Federal Reserve Chair Jerome Powell, in a congressional hearing that pointed to his likely confirmation for a second term as head of the U.S. central bank, said on Tuesday the economy should weather the current COVID-19 surge with only “short-lived” impacts and was ready for the start of tighter monetary policy, Reuters reported.
API Surprises with Jump in Gasoline Stockpiles
The American Petroleum Institute (API) report released late Tuesday showed an inventory draw for crude oil at 1.077 million barrels for the week-ending January 7. This was below the pre-report estimate of 1.95 million barrels.
The API also reported a huge build in gasoline inventories for the second week in a row, this time 10.86 million barrels for the week-ending January 7. Distillate stocks saw an increase in inventory of 3.035 million barrels for the week.
On Wednesday, the U.S. Energy Information Administration (EIA) will release its weekly inventories data at 15:30 GMT. It is expected to show a crude oil draw of 2.1 million barrels.
However, all eyes are likely to be on the gasoline stockpiles figure because according to the API, it rose more than expected for a second week in a row.
Traders are likely to explain away the surge in fuel inventories by blaming it on the New Year’s holiday and winter storms across the country that curtailed driving activity. The rise in coronavirus cases could have also weighed on gasoline demand with many workers staying home to recover. More personal is also working a home as they ride out the renewed pandemic.
A bullish response to Wednesday’s U.S. consumer inflation report could trigger a breakout to the upside now that WTI and Brent crude oil have overtaken their October tops.