Oil prices edged higher on Wednesday, rebounding from early losses after U.S. inventory data showed strong consumer demand and as the Federal Reserve said it would end its pandemic-era bond purchases in March to slow rising inflation.
Prices had been pressured most of the day due to ongoing concerns that supply growth will outpace demand next year and worries that COVID-19 vaccines may be less effective against the spreading Omicron variant.
Brent crude futures settled up 18 cents, or 0.2%, to $73.88 a barrel. U.S. West Texas Intermediate (WTI) crude ended up 14 cents to $70.87 a barrel.
The Federal Reserve said it would end its pandemic-era bond purchases in March and begin raising interest rates as unemployment remains low and inflation has risen.
Oil prices rose in line with other risky assets like U.S. equities, which responded positively to the Fed’s statement.
U.S. crude inventories sank by 4.6 million barrels last week and distillate and gasoline stocks also declined, weekly government data showed. Crude exports picked up sharply, while product supplied by refineries, a signal of consumer demand, hit a record 23.2 million barrels per day.
“The EIA data was very strong across all elements, record implied oil demand, large draw of crude and oil products,” said Giovanni Staunovo, commodity analyst at UBS.
That said, oil analysts anticipate the Omicron variant will curb demand in the coming months. The World Health Organization said preliminary evidence indicated vaccines may be less effective against infection and transmission linked to the Omicron variant, which also carries a higher risk of reinfection.
“As more information comes out about potential lockdowns or travel restrictions as a result of Omicron we could see a pullback from here,” said Gary Cunningham, director of market research at Tradition Energy.
U.S. officials said coronavirus cases are on the rise, but the combination of the two-shot vaccine and booster does still neutralize the disease.
Consumers have already started to alter travel plans and airline spending was declining as of last week, Bank of America research showed.
On Tuesday, the International Energy Agency (IEA) said a surge in COVID-19 cases would dent global demand for oil while crude output is set to increase, especially in the United States, and supply is set to exceed demand at least until the end of next year.