Oil prices surge as Fed chief’s comments less hawkish than expected

(Bloomberg) --Oil jumped by the most in month after Jerome Powell’s comments to the Senate Banking Committee appeared to be less hawkish than the Federal Reserve had recently telegraphed.

West Texas Intermediate crude rose, in tandem with equity markets, as much as 3.8%, to the highest since November 16. Markets were supported after the Federal Reserve Chair said at some point this year he and his colleagues will allow the Fed’s $8.77 trillion balance sheet to run off.

Powell’s comments were a “a touch more dovish than what was implied in the recent minutes and suggested by other Fed speakers in the last few days,” said Vital Knowledge founder Adam Crisafulli.

Oil has made a positive start to 2022 on expectations that demand will continue to expand as the pandemic’s impact on fuel consumption gradually eases, tightening the market. In the past few weeks, crude supplies from OPEC+ member nations Kazakhstan and Libya have been disrupted.

Prices rose earlier in the session as traders focused on tightening supplies, with U.S. crude stockpiles forecast to decline for a seventh straight week. Analysts surveyed by Bloomberg estimate a crude stockpile decrease of 1.7 million barrels for last week, while the industry-funded American Petroleum Institute will release its report on inventories later Tuesday.

“Storage has been down for weeks on end and as long as that continues, the market is going to continue to bid,”said Bob Yawger, director of the futures division at Mizuho Securities USA. “If stockpiles post a big draw, then we will be at the lowest level since 2018,” which would justify WTI trading between $75 and $85 a barrel, he added.

Still, prices face headwinds from the omicron variant as cities worldwide consider tighter restrictions to curb the spread of the highly transmissible virus. In China, the largest crude importer, authorities have locked down a city of 5 million people, a day after detecting omicron in Henan province.

The U.S. Energy Information Administration is set to publish its monthly oil-market outlook at 12 p.m. in Washington on Tuesday.

Prices:

• WTI for February delivery advanced $2.79 to $81.02 a barrel at 11:54 a.m. in New York
• Brent for March settlement gained $2.52 to $83.39 a barrel

Meanwhile, diesel markets in Europe and the U.S. are currently among the strongest oil-product sectors. Profits from turning crude into the fuel are at their highest since October in both regions as winter demand picks up, remaining relatively robust in the face of the omicron virus variant.