Oil prices are bullish at the start of the London session, extending sharp gains in the previous session as the winter weather swept across large areas of the United States, threatening to further disrupt oil supplies. This has pushed both benchmarks to trade above the $90 range, for the first time since October 2014.
The global benchmark, the Brent oil crude futures is up 0.26%, currently trading at $91.35 a barrel. The United States’ benchmark, the West Texas Intermediate crude is up 0.45%, currently trading at $90.69 a barrel.
This comes after the benchmark settled above $90 for the first time since October 2014. Both benchmarks are headed for their seventh straight weekly gain.
What you should know
- A massive winter storm swept across the central and Northeast United States on Thursday where it was delivering heavy snow and ice, making travel dangerous if not impossible, knocking out power to thousands and closing schools in several states.
- Tight oil supplies pushed the six-month market structure for WTI into steep backwardation of $8.08 a barrel on Friday, 7 cents shy of an eight-year high of $8.15 on Nov. 29. Backwardation occurs when prices for prompt spot trade are at a premium to future prices, and usually encourages traders to take oil out of storage.
- Many analysts have explained that as recovering demand is outpacing supply, oil markets are increasingly vulnerable to supply shocks. This will further push up the price of oil making the $100 dream looking more like a reality.
- Geopolitical tensions in Eastern Europe and the Middle East have also been a major factor to the black liquid’s sharp gains which have pushed Brent futures up by 17% and WTI by 20% so far this year.
- The United States warned that Russia was planning to use a staged attack as justification for invading Ukraine. Russia’s President Vladimir Putin has blamed NATO and the West for increased tensions, even as he has moved thousands of troops near to Ukraine’s border.
What they are saying
Edward Moya, senior market analyst at OANDA stated, “WTI crude surged over the $90 level after an Arctic blast made its way to Texas and disrupted some oil production in the Permian Basin. Even as thousands of flights are cancelled, the energy market is fixated over production and not so much short-term demand shocks.”
Chiyoki Chen, chief analyst at Sunward Trading stated, “With geopolitical risk in Ukraine and only gradual increase of production by OPEC+, prices are expected to head toward $100 a barrel.”
Analysts at Citi Research stated in a note, “We expect the sequential trend of quarterly global stock draws will flip to inventory builds as soon as 2Q’22 and sustain for the next 15-18 months. Our view is for a tight crude oil market to shift to surplus outright and in terms of days of demand cover.”
Bottomline
The Organization of the Petroleum Exporting Countries and allies (OPEC+) agreed earlier this week to stick to moderate rises of 400,000 barrels per day (bpd) in oil output with the group already struggling to meet existing targets and despite pressure from top consumers to raise production more quickly. Nigeria yesterday saw a fire outbreak at one of its rigs, the FPSO Trinity Spirit located at the Ukpokiti Terminal.
Fortunately, the statement by the Management of Shebah Exploration & Production Company Ltd (SEPCOL), confirms that there have been no fatalities but this puts a strain on Nigeria’s oil production, a country currently struggling to meet up with its previous OPEC quota, talk less of the new increased quota of 1.72 million bpd.
Over the medium term, however, some analysts expect the oil market to flip into surplus as soon as next quarter, helping put the brakes on the recent surge in prices.
