Oil prices are bullish in the London session today and are set for their sixth weekly gain, amid concerns of tight supplies as major producers continue their policy of limited output increases amid rising fuel demand.
The global benchmark, the Brent crude futures is up 0.5%, currently trading $89.79 a barrel after falling marginally in the previous day. However, prices did reach $91.04 earlier in that session, the highest since October 2014. The U.S. benchmark, the West Texas Intermediate (WTI) crude futures is up 0.6%, currently trading $87.11 a barrel, having declined Thursday. WTI also reached a seven-year high of $88.54 earlier in the session.
Both Brent and WTI are set to rise for a sixth week, the longest weekly streak since October 2021, when Brent prices climbed for seven weeks while WTI gained for nine.
What You Should Know
This year so far, oil prices have gained approximately 15% amid geopolitical tensions between Russia, the world’s second-largest oil producer and a key natural gas provider to Europe, and the West over Ukraine as well as threats to the United Arab Emirates from Yemen’s Houthi movement that have raised concerns about energy supply.
The market is focusing on the meeting of the Organization of the Petroleum Exporting Countries and its allies (OPEC+) where the cartel is likely to stick with a planned rise in its oil output target for March, according to several sources in the group that told Reuters.
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An increase in oil output by producer nations cashing in on expensive crude has depleted the cushion of spare capacity that protects the market from sudden shocks and raised the risk of price spikes or even fuel shortages.
Tatsufumi Okoshi, senior economist at Nomura Securities stated, “Where Brent crosses $90 level, we see some selling from a sense of accomplishment, but investors start buying again when the prices fall a little as they remain cautious about possible supply disruptions due to rising geopolitical tensions. The market expects supply will stay tight as the OPEC+ is seen to keep the existing policy of gradual increase in production.”
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Analysts from ANZ Research said in a note on Friday that, “OPEC has been struggling to increase output in line with the agreed rise in quotas … In effect, spare capacity is at a level which may not be enough to cover any geopolitical disruptions. We see the market remaining in deficit in Q1 2022. With supply constraints likely to be a feature of the oil market for a while, we see markets pricing in a sizeable risk premium.” ANZ also added that it raised its short-term oil price target to $95 per barrel.
On the demand side, crude oil imports in China, the world’s biggest importer of the commodity, could rebound by as much as 7% this year, reversing 2021’s rare decline as buyers step up purchases for new refining units and replenish low inventories, analysts and oil company officials said.