Oil prices headed for a sixth-week gain on Friday amid constrained supply concerns as major producers continued their policies of limited production increases amid rising fuel demand.
Brent crude futures rose 45 cents, or 0.5%, to $89.79 a barrel at 0429 GMT, after falling 62 cents the previous day. However, prices hit $91.04 earlier in the session and hit the highest level since October 2014.
West Texas Intermediate (WTI) crude futures rose 50 cents, or 0.6%, to $87.11 after falling 74 cents on Thursday. WTI also hit a seven-year high of $88.54 at the start of the session.
Both Brent and WTI are poised to climb into their sixth week, their longest weekly streak since October, when Brent prices rose seven weeks while WTI rose nine weeks.
Oil prices are up nearly 15% this year amid geopolitical concerns and supply shortages. Concerns between Russia and Ukraine, the world’s second largest oil producer and an important natural gas supplier for Europe, spread to the West, which did not want to suffer from energy shortages during the winter months. The Houthi movement in Yemen continues to threaten the United Arab Emirates.
Meanwhile, Russia and the United States are keeping the door open to Ukrainian diplomacy.
Profit selling is seen where Brent crosses the $90 level, but investors are wary of escalating geopolitical tensions and possible supply disruptions. The market expects supply to remain tight as OPEC+ appears to be continuing its current policy of gradual increase in output. Investors tend to buy again when prices drop a little.
The market is focused on the February 2 meeting of the Organization of the Petroleum Exporting Countries (OPEC) and its Russian-led allies. Some sources in the group say OPEC+ is likely to stick to the planned increase in its March oil production target.
Meanwhile, the fact that some countries have turned expensive crude oil into cash and consumed the spare capacity pad that protects the market from sudden shocks has increased the risk of sudden price increases and even fuel shortages.
OPEC+ is struggling to increase production in line with the agreed increase in quotas. Global spare capacity is not at a level that can provide a price balance that will affect international criteria or remedy geopolitical disruptions.
In the first quarter of 2022, we see that the market suffers from intervention problems. OPEC+ supply decisions, Omicron variant, geopolitical factors give hard time to the industry in establishing a global balance.
For some time now, the oil market has been priced at a fairly high risk premium amid various concerns affecting supply and demand, and short-term prices have risen. This indicates that the oil price target is above $90 per barrel in short run.
On the demand side, China, the world’s largest importer of commodities, is recording a recovery in 2022 crude oil imports, with crude oil imports rebounding by 7% this year. The decline in 2021 could be reversed as purchases accelerate for new refinery units and replenish low inventories.