Oil hits 7-year high as IEA adopts optimistic outlook
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Oil rose to its highest level since October 2014 as the International Energy Agency said the market appeared to be tighter than previously thought, with demand holding up at the omicron.
The global supply surplus is shrinking and oil demand is on track to reach pre-pandemic levels, according to an IEA report. The agency also said there was a growing gap between changes in global stocks and supply-demand balances. This is a further indication that production could be lower or consumption could be higher than market estimates, he said.
Futures in New York rose above $87 a barrel earlier in the session after an explosion on January 18 destroyed a crude oil pipeline linking Iraq to Turkey. The disruption was short-lived, however, with prices trading around 50 cents below their mid-morning session high London time.
Oil markets have tightened in recent weeks on stronger-than-expected demand and outages at OPEC+ producers, including Libya, with buyers in Asia paying significantly higher premiums for spot shipments. The torrid start to the year prompted Goldman Sachs Group Inc. to raise its forecast for global benchmark Brent, forecasting $100 of oil in the third quarter. Concerns over the impact of the omicron variant of the virus have eased, global stocks are dwindling and unrest in the Middle East is back on the radar after a drone attack on oil installations in the United Arab Emirates.
“Commercial oil inventories are low, oil demand could potentially reach record highs this year, and spare production capacity is expected to fall to multi-year lows,” said Giovanni Staunovo, commodities analyst at UBS Group AG. “The market will be sensitive to any news of possible supply disruptions.”
West Texas Intermediate for February delivery was up 1.6% at $86.76 a barrel as of 10:58 a.m. London after gaining as much as 1.9% earlier.
Brent for March settlement rose 1.2% to $88.54
The spread between the two closest December contracts was down more than $6 a barrel – a bullish pattern indicating tight supplies – after closing at its highest level since October on January 18.
The oil rally, however, poses a challenge to consumer countries and central banks as they attempt to stave off inflation while sustaining global growth. The White House plans to continue to monitor prices and hold discussions with the Organization of the Petroleum Exporting Countries and its allies if necessary, a spokeswoman for the National Security Council said on January 18.
The IEA report indicates that global oil inventories have fallen over the past 12 months. Stockpiles have fallen by more than a billion barrels since peaking in May 2020 and are well below pre-pandemic levels, according to the report.
“Mobility and demand overall has held up relatively well,” Daniel Hynes, senior commodities strategist at Australia and New Zealand Banking Group Ltd., said in an interview with Bloomberg Television. “The supply situation looks decidedly tight and that will keep these markets fairly well supported,” he added.