Release of US stockpiles points to tight supply as Opec+ members prepare to discuss production targets
02 February 2022 - 14:56
byJulia Payne
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London — Oil prices headed towards last week’s seven-year highs on Wednesday as a drawdown of US crude stocks confirmed strong demand and tight supplies, though investors remained cautious before an Opec+ meeting later in the day.
Brent crude rose 23c, or 0.26%, to $89.39 a barrel by 10.50am GMT, after easing 10c on Tuesday. West Texas Intermediate (WTI) was up 34c, or 0.39%, at $88.54.
Tight global supplies and geopolitical tensions in Eastern Europe and the Middle East have boosted oil prices by about 15% so far this year.
On Friday, crude benchmarks reached their highest prices since October 2014, with Brent touching $91.70 and WTI crude hitting $88.84.
“I think the 400,000 barrel per day increase [from Opec+] is priced in, which, judging by recent compliance figures will be less than that due to output constraints,” said Tamas Varga, analyst at PVM Oil Associates. Cold weather in the US could also support prices, he added.
“Bearish EIA [US Energy Information Administration]statistics this afternoon might be used as an excuse for profit-taking. Unless the weather warms and Ukraine tensions are settled, oil should remain supported.”
A major storm is expected to wallop much of the central US and stretch to parts of the northeast this week, bringing heavy snow, rain and ice, the National Weather Service said on Monday. The storm comes days after a deadly winter spell.
US crude stocks fell by 1.6-million barrels for the week ended January 28, compared with analysts’ estimate 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, well above analysts expectations of 1.6-million barrels. The EIA, the statistical unit of the US department of energy, is due to release the latest weekly data later on Wednesday.
Oil cartel Opec and its allies, known as Opec+, are likely to adhere to plans for a moderate oil output rise when it meets on Wednesday, sources from the group said, despite pressure from top consumers to speed up production increases after crude prices hit seven-year highs.
But Goldman Sachs said there was a chance the oil market’s rally would prompt a faster ramp-up.
“If Saudi [Arabia] 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.”
Tensions between Russia and the West also underpinned prices. Russia, the world’s second-largest oil producer, and the West have been at loggerheads over Ukraine, fanning fears 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 about Ukraine.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
Oil prices resume march to seven-year highs
Release of US stockpiles points to tight supply as Opec+ members prepare to discuss production targets
London — Oil prices headed towards last week’s seven-year highs on Wednesday as a drawdown of US crude stocks confirmed strong demand and tight supplies, though investors remained cautious before an Opec+ meeting later in the day.
Brent crude rose 23c, or 0.26%, to $89.39 a barrel by 10.50am GMT, after easing 10c on Tuesday. West Texas Intermediate (WTI) was up 34c, or 0.39%, at $88.54.
Tight global supplies and geopolitical tensions in Eastern Europe and the Middle East have boosted oil prices by about 15% so far this year.
On Friday, crude benchmarks reached their highest prices since October 2014, with Brent touching $91.70 and WTI crude hitting $88.84.
“I think the 400,000 barrel per day increase [from Opec+] is priced in, which, judging by recent compliance figures will be less than that due to output constraints,” said Tamas Varga, analyst at PVM Oil Associates. Cold weather in the US could also support prices, he added.
“Bearish EIA [US Energy Information Administration] statistics this afternoon might be used as an excuse for profit-taking. Unless the weather warms and Ukraine tensions are settled, oil should remain supported.”
A major storm is expected to wallop much of the central US and stretch to parts of the northeast this week, bringing heavy snow, rain and ice, the National Weather Service said on Monday. The storm comes days after a deadly winter spell.
US crude stocks fell by 1.6-million barrels for the week ended January 28, compared with analysts’ estimate 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, well above analysts expectations of 1.6-million barrels. The EIA, the statistical unit of the US department of energy, is due to release the latest weekly data later on Wednesday.
Oil cartel Opec and its allies, known as Opec+, are likely to adhere to plans for a moderate oil output rise when it meets on Wednesday, sources from the group said, despite pressure from top consumers to speed up production increases after crude prices hit seven-year highs.
But Goldman Sachs said there was a chance the oil market’s rally would prompt a faster ramp-up.
“If Saudi [Arabia] 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.”
Tensions between Russia and the West also underpinned prices. Russia, the world’s second-largest oil producer, and the West have been at loggerheads over Ukraine, fanning fears 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 about Ukraine.
Reuters
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