Oil Reaches 7-Year High Because Of Political Risks And Supply Shortage

Oil prices rose to a more than seven-year high on Friday, marking their sixth consecutive weekly rise, as global instability heightened fears of energy supply constraints.

On a weekly basis, the benchmark contracts posted their longest winning streak since October.

Brent futures increased 69 cents to $90.03 a barrel after hitting an all-time high of $91.70 in October 2014.

US crude finished 21 cents higher at $86.82 a barrel, after touching a seven-year high of $88.84 during the session.

Brent’s six-month market structure has shifted to a sharp backwardation of $6.92 per barrel, the most since 2013.

When oil contracts for immediate delivery are priced more than those for later months, dealers are encouraged to release oil from storage to sell it.

The Organization of Petroleum Exporting Countries (OPEC) and its partners, led by Russia, together known as OPEC+, have struggled to increase production levels. The market also reacted to Yemen’s Houthi group’s strikes on the United Arab Emirates.

Concerns about a probable military war in Ukraine resulting in disruption of the energy market, particularly natural gas delivery to Europe, boosted prices.

“So far there has been no supply disruptions in Eastern Europe, so guess the risk premium related to those tensions is not so high,” UBS analyst Giovanni Staunovo said. He added, “Some investors still prefer to hold their exposure.”

Earlier in the session, U.S. crude futures briefly turn negative.

According to Matt Smith, director of commodity analysis at ClipperData, “some of the air has been let out of the tyres on this crude rise” due to milder US rhetoric on Russia.

“But the bigger picture here is that with all the geopolitical uncertainty and the supply side concerns, prices are continuing to just get swept along,” he said.

OPEC+ is expected to maintain its planned increase in oil output for March at its February 2 meeting, according to various OPEC+ sources.

“This is because some key producers in the OPEC+ group, including Russia, continue to struggle to meet their output quotas,” said Marshall Steeves, energy markets analyst at IHS Markit.

Even as the rig count has risen, U.S. production has struggled to rise, according to Steeves, who added that output could be higher this year.

On the demand side, economists and oil company officials predict that crude imports in China, the world’s largest importer, might rise by as much as 7 per cent this year.

(Adapted from CNBCTV18.com)



Categories: Economy & Finance, Geopolitics, Regulations & Legal, Strategy, Sustainability

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