Oil Prices Near 7-Year High on Tight Supply
Oil prices started the week higher, with both Brent crude and West Texas Intermediate (WTI) crude prices approaching their seven-year highs, Commerzbank said in a Monday note.
Oil prices closed last week with their fourth weekly gain in a row. Brent is nearing its October 2018 high of $86.74 per barrel and if it exceeds that level, it would achieve a seven-year high, the bank noted. WTI is still around $1 short of its seven-year high.
Commerzbank said Saudi Arabian Energy Minister Abdulaziz bin Salman appeared unconcerned about the rise in oil prices, which does not point to any more pronounced expansion of oil production by the Organization of the Petroleum Exporting Countries and their allies, or OPEC+.
However, more oil is reaching the market from Libya as oil production is back at 1.2 million barrels per day, according to the Libyan oil minister, now that the blockade of western oilfields has been lifted and oil terminals in the east of Libya have reopened, according to Commerzbank.
The bank noted that it is “striking” that the oil price has not yet responded negatively to the normalization of production in Libya, pointing to market participants focusing on certain price-supportive news reports.
The world’s largest oil trader Vitol said oil prices could increase further due to the tight supply, with Vitol’s Head of Asia viewing the current price level and strong backwardation as being justified, Commerzbank said.
Backwardation means that oil contracts due in the short term are traded at a premium, indicating that available supply is limited. This makes crude oil attractive to financial investors as they can acquire oil contracts more cheaply when a contract rolls over.
The data published by the ICE and Commodity Future Trading Commission (CFTC) on Friday both show a significant rise in speculative net long positions in Brent and WTI, by 44,400 and 25,300 contracts, respectively, in the week to Jan. 11, the bank said.
Crude oil futures rallied on signs of strong demand, which eased concerns over rising COVID-19 cases, Australia’s ANZ Bank said in a Monday note.
Brent crude has seen a 25% jump since the start of December 2021 and closed only slightly lower than the highest price since the start of the pandemic, the bank noted.
The International Energy Agency previously said global oil demand has been stronger than expected on the omicron variant’s mild effects, which is backed up by signs in the physical market, according to ANZ Bank.
Physical barrels of oil are being traded at near-record high premiums and the strong outlook is reflected by the market’s bullish backward dated prices structure, where near-term futures are higher than longer-dated ones, the bank said.
The strong global demand is also easing concerns about China, which is implementing a zero-COVID strategy with increased restrictions, ANZ Bank noted. Read: Oil Prices Edge Higher as Omicron Concerns Reduce
