London: Oil prices were steady on Thursday near two-month highs, with Brent crude trading near $85 a barrel, buoyed by expectations that a strong economic recovery will boost demand, but rising US inventories and high inflation capped gains.
Brent crude futures rose 26 cents, or 0.3 per cent, to $84.93 a barrel, by 1445 GMT (6.45pm UAE time).
US West Texas Intermediate (WTI) crude futures were up 8 cents, or 0.1, to $82.72 a barrel.
Oil prices rallied more than 50 per cent in 2021 and some analysts expect this trend to continue this year, forecasting that a lack of production capacity and limited investment could lift crude to $90 or even above $100 a barrel.
“The main factors driving prices up are ... the generally positive market sentiment as Omicron concerns abate and the expectation of continued dynamic economic development,” Commerzbank said.
Cold weather in North America also supported prices.
“It will be interesting to see if the optimism is maintained when temperatures start rising come spring,” PVM Oil analyst Tamas Varga said.
Rising US fuel inventories last week and high inflation in the world’s biggest economy weighed, however.
Data from the US Energy Information Administration (EIA) on Wednesday showed fuel demand has taken a hit from Omicron, with gasoline stockpiles increasing by 8 million barrels in the week to January 7, compared with analyst expectations for a 2.4 million-barrel rise.
“In reality, the weekly EIA report was less bullish than the headline number, as total crude oil inventories fell 4.8 million barrels but were more than offset by a stock build across refined products,” Citi said in a note.
The drop in crude inventories “might have been related to end-of-year tax issues on oil stocks onshore in Texas and Louisiana”, the bank added.
US supplies are set to rise as producers are paving the way for faster production by expanding well completions in the country’s top shale oil field, the Permian Basin of West Texas and New Mexico, according to research data.
Separately, concerns about inflation putting pressure on the Federal Reserve to speed up the timeline for kicking off interest rate hikes are weighing on markets.