Oil prices shrug off Omicron slump, soar to 2-month highs

© Reuters. FILE PHOTO: The sun sets behind an oil pump outside Saint-Fiacre, near Paris, France September 17, 2019. REUTERS/Christian Hartmann/File Photo

By Shadia Nasralla

LONDON (Reuters) - Oil prices hit two-month highs on Wednesday on tight supply and easing concerns about the potential hit to demand from the Omicron coronavirus variant.

Federal Reserve Chairman Jerome Powell said on Tuesday the economy of the United States, the world's biggest oil consumer, should weather the current COVID-19 surge with only "short-lived" impacts and was ready for the start of tighter monetary policy.

Brent crude futures were up 34 cents, or 0.4%, at $84.06 a barrel at 0918 GMT.

U.S. West Texas Intermediate (WTI) crude futures were up 49 cents, or 0.6%, to $81.71 a barrel. Both contracts are set for their sixth session of gains out of eight.

The Brent contract is showing growing backwardation with front-month delivery around $4.20 more expensive than delivery in six months' time, indicating tight supply currently.

OPEC+ producers continue to hold back more than 3 million barrels per day in output, while sanctions on Iran pin back its exports.

And though OPEC+ producers are raising their output targets each month, technical difficulties have prevented several countries from hitting their quotas.

"Assuming China doesn’t suffer a sharp slowdown, that Omicron actually becomes omi-gone, and with OPEC+’s ability to raise production clearly limited, I see no reason why Brent crude cannot move towards $100.00 in Q1, possibly sooner," said Oanda analyst Jeffrey Halley.

"There are plenty of variable outcomes in the previous sentence, the biggest threat being Omicron in China, India, and Indonesia."

Meanwhile, European jet fuel refining margins are back to pre-pandemic levels as supplies in the region tighten and global aviation activity recovers.

U.S. crude stocks fell by 1.1 million barrels for the week ended Jan. 7, according to market sources citing figures from the American Petroleum Institute (API) industry group.

Government figures are due on Wednesday. [EIA/S]

On Tuesday, the U.S. Energy Information Administration upgraded its oil demand outlook, seeing U.S. demand rising by 840,000 bpd in 2022, up from a previous forecast for an increase of 700,000 bpd.