Crude oil futures hold gains amid upbeat new year sentiment

Crude oil futures were mostly steady in mid-morning trade in Asia Jan. 4 as upbeat sentiment continued to underpin prices going into the new year, while the OPEC+ group saw a limited impact on global demand growth from the coronavirus omicron variant.

At 9:55 am Singapore time (0155 GMT), the ICE March Brent futures contract was up 2 cents/b (0.03%) from the previous close at $79.00/b, while the NYMEX February light sweet crude contract was 2 cents/b (0.03%) higher at $76.10/b. Both benchmarks had settled up to 1.5% higher overnight.

"Market participants seem to be tilted toward taking on more risks for now," said IG market strategist Yeap Jun Rong in a Jan. 4 note, adding that optimism surrounding the upcoming OPEC+ meeting was underpinning the energy sector.

OPEC and its Russia-led allies appear increasingly confident that the omicron variant will take a limited toll on global oil demand. The group narrowed their forecast of the market's oversupply to 1.4 million b/d for the first quarter of 2022 -- less than half of the 3.0 million b/d surplus they estimated a month ago.

The forecast, reviewed by an advisory committee Jan. 3, a day ahead of the full OPEC+ meeting, lends support to suggestions from several delegates that the group may approve another 400,000 b/d hike in production quotas for February.

"No major evidence of omicron impact on demand," one delegate told S&P Global Platts Jan. 3 on condition of anonymity. "So far, so good."

The positive sentiment has analysts once again calling $100/b oil. Analysts from OCBC bank in a note late Jan. 3 cited tightening inventory levels and rising energy demand from Asia as factors supporting this view.

"US stock-to-use is now trading at its tightest since the shale boom. The tightness suggests WTI's current fair value at above $80/b, by our estimates. This means both Brent and WTI appear to be trading below fair value at present," they said.

"Recovering demand globally, especially from Asia, may further raise demand for energy, possibly sending Brent to as high as $100/b in the coming year," they added.

In the near term, US crude oil stocks are expected to continue falling. Analysts surveyed by Platts said Jan. 3 total commercial crude stocks likely fell by 4.4 million barrels to around 415.6 million barrels in the week ended Dec. 31.

Gasoline inventories meanwhile were expected to have risen by 1.9 million barrels to 224.6 million barrels in the week, and distillate stocks to have climbed 1.9 million barrels to around 124.3 million barrels.