The rise in crude oil prices comes as the world economy faces rising inflation.
Brent oil reached a new high of seven years when a robust crude market countered the US Federal Reserve’s indication that it would soon start raising interest rates to curb inflation.
Benchmark futures have added nearly a dollar to trade near $ 91 a barrel, while West Texas Intermediate has also been the highest since 2014. The recent rally in oil comes as physical supplies appear extremely tight. Key swap deals linked to the North Sea market, which help price many of the world’s oil, have been trading at their strongest since 2019, while benchmarks of market strength, known as time spreads, have been trading at their strongest level since November.
The Fed on Wednesday endorsed interest rate hikes in March and opened the door for more frequent, potentially larger hikes than expected. The rise in crude oil prices comes as the world economy struggles with rampant inflation.
Traders are also following up on events in Ukraine out of concern that Russia could launch an invasion after thousands of troops were assembled at the border, potentially disrupting energy supplies. Moscow has denied any involvement in the attack, but Citigroup Inc. said a rise in crude volatility is a sign that the market is pricing in an increased political risk premium, possibly of at least $ 5 a barrel.
Oil rose in the opening weeks of 2022 over the continued recovery in energy consumption from the devastation of the coronavirus pandemic. With global demand coming in stronger than expected and increasing concern about how much further producers will increase production, supplies at some key centers declined early in the year.
“The development after 2022 was strictly bullish with declining stocks so far this year against a normal seasonal trend of rising stocks,” says Bjarne Schieldrop, chief commodity analyst at SEB AB. “As long as stockpiling continues like this, the bulldozer will continue.”
- Brent for March settlement rose 0.7% to $ 90.59 a barrel at 08:37 in New York
- March Delivery WTI added 0.8% to $ 88.09 a barrel
Stocks at the main U.S. storage center at Cushing dropped again last week to reach the lowest level for this time of year in a decade. At the same time, weekly oil product consumption is at its highest level for the time of year in at least 30 years, driven in part by a gust of cold weather in the US
The Organization of Petroleum Exporting Countries and its allies, including Russia, will have a chance to weigh in next week when they meet on 2 February. The coalition is likely to stamp out an increase of 400,000 barrels per day for March, according to delegates.
- The US physical crude oil market is nearing its strongest level in more than a year, and may even get stronger.
- U.S. gasoline futures are at the highest premium for crude oil for this time of year since 2013, as refineries are struggling to build up stocks before the summer.
- U.S. propane demand remained close to a record last week as winter weather blew through much of the country.