Oil prices soared to their highest in more than seven years on Friday and posted a sixth straight weekly gain as geopolitical turmoil fueled concerns over tight energy supplies.
On a weekly basis, oil benchmark contracts posted the longest run of gains since October.
Brent futures rose 69 cents to $90.03 after hitting $91.70, the highest level since October 2014.
West Texas Intermediate (WTI) crude was up 21 cents at $86.82 a barrel after hitting a seven-year high of $88.84 during the session.
Tight oil supplies have pushed the six-month market structure for Brent to $6.92 per barrel, the largest backwardation seen since 2013. Backwardation exists when contracts for near-term delivery of oil are priced higher than those for later months. Backwardation encourages traders to release oil from the storages to sell it promptly.
The Russia-led allied producer group, known on the supply side as OPEC+, struggles to raise production levels. the market is stunned by attacks of Houthi group in Yemen against the United Arab Emirates and a possible military threat in Ukraine that could disrupt energy markets, particularly gas supplies to Europe, supported by conflict-related concerns.
There has been no supply disruption in Eastern Europe so far, so this threat isn’t too devastating for now, as the risk premium associated with that tension isn’t that high as the diplomacy doors are kept open by Russia. However, some investors do not intend to ignore this risk.
US crude futures turned negative for a short while earlier in the session. The relatively mild US rhetoric towards Russia is likely to have softened the oil rally. But the big picture here is that prices continue to rise with all the geopolitical uncertainty and supply side concerns.
Several OPEC+ sources said at the February 2 meeting that OPEC+ is likely to stick to the planned increase in the March oil production target.
Meanwhile, China’s crude oil imports expected to recover this year. Analysts and oil company officials said on the demand side, crude oil imports from China, the world’s largest importer of commodities, could recover up to 7% this year.
Backwardation: The difference between these two prices when the forward price is lower than the cash price.
