Oil edged higher as the market weighed a series of supply outages against smaller import quotas in China, the world’s largest crude buyer.
West Texas Intermediate closed 0.6% higher on Thursday, rising for a seventh day for its longest run of increases in 10 months. Oil prices have risen over the past month since the initial plunge in late November, when fears of a global economic lockdown due to the omicron variant jolted markets.
“That creep up reflects recognition that economic activity remains quite strong despite the obvious worsening of the pandemic,” said Pavel Molchanov, an analyst at Raymond James & Associates Inc. “Consumer behavior and the overall economy is in good shape, and ultimately that’s what matters more for oil demand.”
Crude is on course for the biggest annual advance in more than a decade, with the market now largely shrugging off the emergence of the omicron virus variant. The rollout of vaccines accelerated the reopening of economies, propelling crude’s advance.
Additionally, surging natural gas prices spurred greater demand for oil-derived products while OPEC+ continues to only drip-feed additional supplies onto the market. Goldman Sachs Group Inc., forecasts further gains in oil prices next year.
The market’s lack of reaction to omicron “bodes well for demand to start 2022,” according to Jens Pedersen, a senior analyst at Danske Bank A/S. “It further suggests OPEC+ made the right call to stick to its plans of further normalizing production.”
The Organization of Petroleum Exporting Countries and its allies including Russia are set to gather next week to assess the state of the market and to review supply policy into 2022. This year, the group has restored shuttered capacity at a gradual pace, arguing that a cautious approach is merited. Consultant JBC Energy estimates that OPEC members boosted production by 195,000 barrels a day in December, led by gains in Saudi Arabia.
Earlier in the session, crude was under pressure as China cut the amount of import quota awarded to private refiners and favored complex processors as it seeks to reform the sector. Beijing granted 109 million tons, 11% less than last year, in the first batch for 2022, according to officials from companies that received notification of the allowances.
The price dip blunted a recent rally sparked by a series of supply outages in Ecuador, Libya and Nigeria — though flows from Nigeria’s Forcados terminal resumed Wednesday. U.S. crude stockpiles also shrank for a fifth consecutive week, according to Energy Information Administration data released Wednesday.