Oil calmed on Thursday, reversing early session losses as strong demand and short-term supply disruptions continued to support prices near their highest levels since late 2014.
Global indicators WTI and Brent mixed, markets breathed.
Brent crude futures were down 17 cents, or 0.2%, to $88.27 a barrel as of 0418 GMT, after falling more than $1 at the start of the session. Touching $89.17 a barrel on Wednesday, Brent hit its highest level since October 2014.
West Texas Intermediate (WTI) crude futures which lost around $1 earlier, were up 7 cents, or 0.1%, to $87.03 a barrel. WTI hit $87.91 on Wednesday, hitting its highest level since October 2014.
The market is getting tighter. The International Energy Agency (EIA) said in a note that global oil demand is on track to reach pre-pandemic levels. Short-term supply disruptions are also helping markets tighten.
Brent crude rose sharply after reports that the important oil pipeline from Iraq to Turkey had been shut down by an explosion. However, officials said on Wednesday that crude oil flow has resumed through the Kirkuk-Ceyhan pipeline, which was halted on Tuesday.
Geopolitical supply concerns increased this week after the Houthi group in Yemen attacked the Organization of the Petroleum Exporting Countries (OPEC) third-largest producer, the United Arab Emirates. Meanwhile, Russia, the world’s second largest oil producer, has built up a military build-up near the Ukrainian border, fueling fears of invasion and possible supply uncertainties.
The key driver behind rising oil prices is the recovery in fuel demand after the wide-ranging coronavirus pandemic.
It is clear that the oil rally may continue in the next few months, and demand seems not to care about the spread of the Omicron COVID-19 variant, indicating that prices may exceed $100 per barrel.
The producer group OPEC+, formed by the Organization of the Petroleum Exporting Countries (OPEC), Russia and its allies, is struggling to meet its monthly production increase target of 400,000 barrels per day (bpd). Some members are unable to meet their targets due to technical glitches and inadequacies.
U.S. crude oil and gasoline inventories rose last week, while distillate stocks fell, according to market sources based on Wednesday’s figures from the American Petroleum Institute.
In the week ending January 14, crude oil inventories increased by 1.4 million barrels. Gasoline stocks increased by 3.5 million barrels, while distillate stocks fell by 1.2 million barrels, according to some sources, who asked not to be named.