Oil Pares Gains With Risk-Off Trades Countering Robust Demand
Source: By Alex Longley, Bloomberg • Posted: Tuesday, January 25, 2022
WTI futures near $83, paring an increase of as much as 1.5% Wider markets roiled by Russia tension, interest-rate hikes
Oil pared gains following the biggest one-day tumble this year, with traders focused on shaky risk sentiment in wider markets while the outlook for energy demand remains strong as the pandemic eases.
West Texas Intermediate futures traded near $83 a barrel. Prices have whiplashed as the U.S. Federal Reserve prepares the ground for interest-rate increases. Geopolitical tensions are also rising with Russia building up troops along the border with Ukraine and the U.S. responding by putting thousands of soldiers on alert for deployment. The stronger dollar on Tuesday also reduced the appeal of commodities like oil that are priced in the currency.

However, in recent months, oil bears have retreated with speculators turning more bullish amid lower stockpiles. Crude rallied to a seven-year high last week as global consumption remained strong in the face of the fast-spreading, but milder, omicron variant. While inventories usually grow early in the year, traders are fretting that by the Northern Hemisphere’s summer, when demand typically rises, inventories may be too low to prevent a jump in prices.
Also see: Oil Buyers Snap Up Diesel-Rich Crude as Omicron Fears Abate
“Markets have proved to be tighter than we thought,” said David Martin, head of commodity desk strategy at BNP Paribas. He see small reductions in inventories this quarter, “and that underpins this view that the market continues to tighten up.”
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A Russian invasion of Ukraine would potentially have widespread implications for energy and commodities markets, including oil and gas. The risk of that happening in the next few weeks stands at more than 50%, according to RBC Capital Markets analyst Helima Croft. Disruption to oil flows from Russia could easily send prices to $120 a barrel, JPMorgan Chase & Co. wrote last week.
Costlier oil is helping fan inflationary pressures worldwide, prompting central banks to tighten monetary policy and forcing governments to take steps to cushion the impact on consumers. On Tuesday, Japan said it will give subsidiesto refiners in a bid to curb gasoline prices.
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