Oil tests pre-Omicron highs on economic growth hopes

Oil prices climbed on Wednesday, extending big gains in the previous session after the U.S. Federal Reserve chief signaled the central bank may raise rates more slowly than expected, which should support oil demand in the near term.

Benchmarks Brent and WTI are trading at their highest levels since the super contagious Omicron variant of the coronavirus emerged in late November, as it has not hit fuel demand the way previous variants did.

U.S. West Texas Intermediate (WTI) crude futures rose 38 cents, or 0.5per cent, to US$81.60 a barrel at 0224 GMT, adding to a 3.8per cent jump in the previous session.

Brent crude futures gained 22 cents, or 0.3 percent, to US$83.94 a barrel, after jumping 3.5per cent in the previous session.

Federal Reserve Chairman Jerome Powell said on Tuesday the economy should withstand the current COVID-19 surge with only "short-lived" impacts and said, "it is a long road" to anything close to restrictive monetary policy.

"A long road to normal means the economy will still see a lot of support over the first half of the year and that is good news for crude prices," said OANDA analyst Edward Moya.

Data from the American Petroleum Institute (API) industry gave a weaker picture of fuel demand, with a smaller decline in crude stockpiles than expected and bigger builds than expected in gasoline and distillate inventories.

Crude stocks fell by 1.1 million barrels for the week ended Jan. 7, according to market sources citing API figures. That was less than the 1.9 million barrel draw that 10 analysts polled by Reuters had expected.

Gasoline stockpiles rose by 10.9 million barrels, compared with analysts' expectations for a 2.4 million barrel build. Distillate inventories, which include diesel and heating oil, rose by 3 million barrels compared with forecasts for a 1.8 million barrel increase.

However buoying the market was the U.S. Energy Information Administration's upgraded oil demand outlook released on Tuesday, seeing total U.S. demand rising by 840,000 barrels per day (bpd)in 2022 from last year, up from a previous forecast for an increase of 700,000 bpd.

At the same time, the EIA pared its production outlook for 2022, expecting U.S. oil output to rise by 640,000 bpd, down from an earlier forecast for an increase of 670,000 bpd.