Oil heads for seven-year highs

Tokyo — Oil prices climbed on Wednesday towards last week’s seven-year highs as a draw in US crude stocks confirmed strong demand and a lack of supply, but investors remained cautious ahead of an Opec+ meeting later in the day.

Brent crude rose 17c, or 0.2%, to $89.33 a barrel by 3.39am GMT, after easing 10c on Tuesday.

US West Texas Intermediate (WTI) crude was up 16c, or 0.2%, at $88.36 a barrel, having gained 5c the previous day.

Tight global supply and geopolitical tension in Eastern Europe and the Middle East have boosted oil prices by about 15% so far in 2022. 

On Friday, crude benchmarks hit their highest prices since October 2014, with Brent touching $91.70 and US crude hitting $88.84.

“A drop in US crude inventories provided support, though an increase of [petrol] stocks partially offset bullish sentiment,” said Satoru Yoshida, a commodity analyst with Rakuten Securities.

“Opec+ is likely to maintain its policy unchanged, which means a supply shortage and an upward trend in oil prices will continue,” he said.

US crude stocks fell by 1.6-million barrels for the week ended January 28, against analysts’ estimate of an increase of 1.5-million barrels, according to market sources citing American Petroleum Institute figures on Tuesday.

But petrol inventories rose by 5.8-million barrels, above analysts’ expectations for a 1.6-million barrel build.

oil cartel Opec and allies, together known as Opec+, are likely to stick to existing policies of moderate output increases on Wednesday, five sources from the producers’ group said, even as it expects demand to rise to new peaks in 2022 and as oil prices trade near seven-year highs.

But Goldman Sachs said there was a chance the oil market’s rally would prompt a faster ramp-up.

Sources said an Opec+ technical panel meeting on Tuesday did not discuss a hike of more than the expected 40,000 barrels a day from March.

“If Saudi and Russia show any signs of raising their production to shoulder shortfalls of some members who cannot meet their output targets, oil prices will likely fall,” said Tetsu Emori, CEO of Emori Fund Management.

“But if there are no such surprises, the market is expected to keep a bullish trend as demand is recovering and geopolitical tensions linger,” he said.

Tension between Russia and the West also underpinned crude prices. Russia, the world’s second-largest oil producer, and the West have been at loggerheads over Ukraine, fanning the fear that energy supplies to Europe could be disrupted.

On Tuesday, Russian President Vladimir Putin accused the West of deliberately creating a scenario designed to lure it into war and ignoring Russia’s security concerns over Ukraine. 

Reuters