Oil Drops Lower on Profit-Taking

U.S. West Texas Intermediate (WTI) crude futures settled down 52 cents, or 0.6%, at $82.12 a barrel, after increasing 5.6% over the last two days.

Brent crude futures dropped 20 cents, or 0.2%, to $84.47 a barrel. It had earned 4.7% over Tuesday and Wednesday.

The Federal Reserve may need to increase rates four times in 2022 if inflation doesn’t enhance quickly enough. On Thursday, Chicago Federal Reserve President Charles Evans stated that the Fed has to take action faster than expected because inflation has stayed high longer.

Oil prices typically move inversely to the U.S. dollar. A more strong dollar makes commodities more expensive for those holding other currencies.

On Wednesday, some investors took a more in-depth look at the U.S. Energy Information Administration (EIA) data. While crude oil inventories dropped more than expected, the report also revealed fuel demand had taken a hit from Omicron. Gasoline stockpiles rose by 8 million barrels in the week to Jan. 7, corresponding with analyst expectations for a 2.4 million-barrel rise.[EIA/S]

Oil Prices Rose More than 50% in 2021

Nevertheless, losses were limited by believing that Omicron was not severe enough to derail a global demand recovery and cold weather in North America.

The Fed’s Evans stated he expects the economy to resume “power through” the epidemic.

Some analysts predict the rally to continue, indicating that spare production capacity and limited investment could lift crude to $90 or even further $100 a barrel. JP Morgan forecast oil prices to climb as high as $125 a barrel this year.

U.S. crude futures for delivery in February 2023 traded at a discount of more than $9 to crude futures for February, moving into overbought territory for the first time after November.