Oil prices jumped more than 3% on Tuesday afternoon ahead of the much-watched API Crude Oil Inventory Data report, as doubts continue to be raised over capacity of OPEC to meet an increase in demand.
As of 11:54 a.m. EST, WTI was trading at $3.04 (+3.89%) per barrel at $81.27. The benchmark Brent crude oil was trading up $2.76 (+3.41%) a barrel at $83.63 for this year’s high.
On Monday, the narrative was precisely the opposite, as Omicron fears cast doubt on the near-term effects of oil demand, especially with China, which has a history of aggressively locking down infected regions to slow down. the spread of the virus. But on Tuesday, the market had tipped the other way on reports that OPEC+ spare capacity would shrink in the second half of the year as it gradually raises production targets by then at the end of the year. rate of an additional 400,000 bpd each month.
Another catalyst for higher oil prices is the weak US dollar, which makes oil cheaper for countries with other currencies.
Finally, the inability of OPEC+ to increase production as quickly as it has agreed is also supporting crude oil prices. While the major OPEC+ group agreed to increase production to 400,000 bpd, it was unable to reach that volume in a month. For December, the smaller OPEC group managed to raise production by just 70,000 bpd from November, well below the 253,000 bpd that was its share of the 400,000 bpd hike agreed by OPEC+.
OPEC+ agreed to increase another 400,000 bpd in February, but as OPEC+ increases production each month to varying degrees, its excess capacity is shrinking, diminishing OPEC’s ability to meet increased demand. .
On the dollar front, the dollar weakened partly because traders are wary of December inflation data due out on Wednesday, and partly due to anticipated interest rate hikes by the Federal Reserve. .
By Julianne Geiger for Oilprice.com
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