Supply tightness, Omicron fears recede Crude oil closed sharply higher at a two-month high

News on January 12, supply concerns and the Omicron variant will not destroy energy demand expectations boosted, crude oil futures closed sharply higher, New York crude oil hit the highest close in two months
.

By the close, West Texas Intermediate for February delivery on the New York Mercantile Exchange was up $2.
99, or 3.
8 percent, at $81.
22 a barrel
.
According to Dow Jones market data, this is the highest front-month contract price
since November 11.
On ICE Eurex, global benchmark Brent crude rose $2.
85, or 3.
5 percent, to $83.
72 a barrel in March, the highest settlement since Nov.
9
.
So far, West Texas Intermediate and Brent crude have risen nearly 8%
in 2022.

Manish Raj, chief financial officer of Velandera Energy Partners, said the market's theme was "demand recovery rather than supply concerns, although both are supportive of oil prices
.
" Although Omicron continues to expand, global demand for oil across all modes of transportation remains strong
.
”

Oil prices rose on Tuesday despite reports that oil production in Libya had resumed and that mining activity in Kazakhstan's Tengiz field had returned to normal
.
Concerns last week that production in both countries were affected helped push crude prices
higher.

Libya's oil production has returned to 1 million barrels
per day after militias lifted a three-week-long blockade of oil fields, according to Bloomberg.
These include the largest oil fields
in the country.
According to Argus, Chevron Corp.
, the lead company of the tengizchevron consortium, said production from Kazakhstan's Tengiz oil field, which produces 600,000 barrels per day, has returned to normal
after being interrupted last week by unrest.

Commerzbank commodities analyst Carsten Fritsch said in a note: "While exports from Libya's western oil ports are likely to restart soon, exports from most of Libya's other oil ports have been suspended this week due to bad weather, meaning that the increase in the country's oil production has not yet directly translated into an increase
.
" This may explain why oil prices have yet to react
to the reopening of Libya's oil fields.
”

Velandera Energy's Raj said traders were also closely watching tensions within Kazakhstan, but that had not had any meaningful impact
on oil production.
"The probability of a large-scale production disruption being considered by traders is low
," he said.
Since Kazakhstan has consistently exceeded its OPEC+ quota, a small disruption will only bring it back into compliance
.
”

OPEC+, which is made up of OPEC and its allies, reached a 116.
5 percent output quota in December, but a survey released Tuesday by S&P Global Platts showed that the organization's 19 members were producing about 620,000 barrels
per day below their overall cap.

Platts Analytics still expects the first three months of market oversupply, but estimates that OPEC+'s sustainable spare capacity will shrink to 800,000 b/d by June, which would be troubling
if the market buffer for the second half of the year is very thin if monthly quota increases are maintained, the findings said.
”

However, the U.
S.
Energy Information Administration expects annual U.
S.
oil production to hit a record
next year.
In a monthly report released Tuesday, government agencies expect oil production to rise to 12.
4 million barrels per day by 2023, the highest annual average
on record.

At the same time, tensions between Russia and Ukraine have affected "fluctuations in natural gas, but little on oil prices, as Ukraine is Russia's main channel
for gas deliveries to Western Europe.
" ”

The EIA's weekly U.
S.
oil supply data will be released
on Wednesday.
On average, analysts in the S&P Global Platts survey expect U.
S.
crude supply to fall by 1.
6 million barrels
in the week ending Jan.
7.
They also expect gasoline inventories to increase by 3 million barrels and distillate inventories by 2 million barrels
.

Among other exchange-traded energy products, gasoline rose 3.
6 percent to $2.
357 a gallon in February and heating oil rose 3.
1 percent to $
2.
564 a gallon in February.
Natural gas closed at $4.
249/MMBtu in February, up 4.
2%.