Oil edges higher on tight supply, limited Omicron impact

Crude oil storage tanks are seen in an aerial photograph at the Cushing oil hub in Cushing, Oklahoma, U.S. April 21, 2020. REUTERS/Drone Base/File Photo

SINGAPORE, Jan 17 (Reuters) – Oil prices edged up on Monday as investors bet supply will remain tight amid restrained output by major producers with global demand unperturbed by the Omicron coronavirus variant.

Brent crude futures gained 9 cents, or 0.1%, to $86.15 a barrel by 0539 GMT. Earlier in the session, the contract touched its highest since Oct. 3, 2018 at $86.71.

U.S. West Texas Intermediate crude was up 29 cents, or 0.4%, at $84.11 a barrel, after hitting $84.78, the highest since Nov. 10, 2021, earlier in the session.

The gains followed a rally last week when Brent rose more than 5% and WTI climbed over 6%.

Frantic oil buying, driven by supply outages and signs the Omicron variant will not be as disruptive as feared for fuel demand, has pushed some crude grades to multi-year highs, suggesting the rally in Brent futures could be sustained a while longer, traders said. read more

“The bullish sentiment is continuing as (producer group) OPEC+ is not providing enough supply to meet strong global demand,” said Toshitaka Tazawa, an analyst at Fujitomi Securities Co Ltd.

“If (investment) funds increase allocation weight for crude, prices could reach their highs of 2014,” he said.

The Organization of the Petroleum Exporting Countries, Russia and their allies, together known as OPEC+, are gradually relaxing output cuts implemented when demand collapsed in 2020.

But many smaller producers cannot raise supply and others have been wary of pumping too much oil in case of renewed COVID-19 setbacks. read more

“What comes in view next is the summer demand bump, especially in Europe and the U.S., which could be bigger than last year’s, if the growing hope around the Omicron finally turning COVID from pandemic to endemic proves right,” said Vandana Hari, energy analyst at Vanda Insights.

Festering geopolitical threats to supply are also supporting bullish sentiment, Hari said.

U.S. officials voiced fears on Friday that Russia was preparing to attack Ukraine if diplomacy failed. Russia, which has amassed 100,000 troops on Ukraine’s border, released pictures of its forces on the move. read more

The U.S. government has held talks with several international energy companies on contingency plans for supplying natural gas to Europe if conflict between Russia and Ukraine disrupts Russian supplies, two U.S. officials and two industry sources told Reuters on Friday. read more

U.S. crude oil stockpiles, meanwhile, fell more than expected to their lowest since October 2018, but gasoline inventories surged due to weak demand, the Energy Information Administration said on Wednesday. read more

Concerns over supply constraints outweighed the news of China’s possible…