Crude oil futures hold onto gains after 2-day climb as outlook remains positive

Crude oil futures were mostly steady in mid-morning trade in Asia Jan. 13, holding onto strong gains from the previous two trading sessions, as the narrative of a tightening oil market remained in focus amid falling US crude stocks.

At 10:03 am Singapore time (0203 GMT), the ICE March Brent futures contract was down 4 cents/b (0.05%) from the previous close at $84.63/b, while the NYMEX February light sweet crude contract was 5 cents/b (0.06%) lower at $82.59/b.

Oil prices have continued to push higher overnight as investors remained bullish on the outlook for oil, with global demand still on track for a firm recovery and stocks remaining tight.

US commercial crude oil stocks fell 4.55 million barrels to 413.3 million barrels in the week ended Jan. 7, the US Energy Information Administration reported Jan. 12, the lowest level recorded since October 2018. Lower production, offset by weakened refinery appetite and sliding exports, had led stocks lower.

However, US gasoline stocks rose by 7.96 million barrels to 240.75 million barrels over the same period, the highest since June, while distillate stocks climbed 2.54 million barrels to 129.38 million barrels.

"ICE Brent briefly broke above $85/b at one stage with market sentiment remaining positive. Despite the bearish product numbers more than offsetting the crude draws, the market appears to have paid little attention to this," said ING analysts Warren Patterson and Wenyu Yao in a Jan. 13 note.

Total US crude production was seen falling 100,000 b/d to 11.7 million b/d last week, the EIA said, retreating from a 19-month high averaged during the previous two weeks.

Analysts said the near-term direction for oil prices remained very much skewed to the upside despite rising COVID-19 cases worldwide and continuously rising US refined product stocks. Lagging production growth from OPEC producers and supply disruptions in Africa meant that prices will likely withstand any further shocks, barring the emergence of new strains of the coronavirus.

Inflation readings from the US released Jan. 12 meanwhile came in within expectations, lessening the case for an aggressive shift in monetary policy tightening by the US Federal Reserve. Some market watchers nonetheless said inflation remains at significantly high levels.

US consumer prices in December rose 7% year on year, while core inflation was up 5.5% over the same period, the US Labor Department said.

"While the data still points toward elevated pricing pressures and has further bolstered expectations of the Fed raising interest rates in March, markets may find some relief from an absent upside surprise at the moment," said IG market strategist Yeap Jun Rong.

ING's Chief International Economist James Knightley said in a Jan. 12 note: "We could be close to the peak but the risk is that inflation stays higher for longer and we could see a more aggressive response from the Fed."