After a gap of seven years, the Brent crude oil price hit $90 a barrel on Jan 26 because of a tight supply and growing political tensions between Russia and Ukraine their allies.
Brent crude rose $2.15, or 2.4%, to $90.35, the first time the global benchmark has broken $90 since October 2014. U.S. West Texas Intermediate (WTI) crude was up $2.25, or 2.6%, to $87.86. OPEC crude oil, however, remained around $87/barrel. This stunning growth in the crude oil price in global markets is an indicator of further hike in domestic fuel prices in the days ahead.
Energy prices are higher on worries that Russia’s gas supply to Europe could be interrupted, which would increase oil consumption.
US Secretary of State Blinken said the United States will ensure global energy supplies are not interrupted if Russia takes action against Ukraine.
“World inventories continued to fall as producers struggled to restore output to pre-pandemic levels,” said Andrew Lipow, president of Lipow Oil Associates in Houston.
Furthermore, geopolitical tensions have only added to worries about the various factors contributing to an already tight market. OPEC+ is having trouble meeting monthly production targets as it restores supply to markets after drastic cuts in 2020, and the United States is more than a million barrels short of its record level of daily output. At the same time, demand remains strong, suggesting that inventories may continue to decline.
“Historically, markets led higher by tightening product and crude inventories are difficult to solve absent a demand destruction event or an injection of supply. Neither appear on the horizon, currently,” wrote Michael Tran, commodity strategist at RBC Capital Markets, in a note. The Organization of the Petroleum Exporting Countries and allies, known as OPEC+, meets on Feb. 2 to consider another output increase.
Inventories in the United States rose in the most recent week, with crude stocks up by 2.4 million barrels, against expectations for a modest decline in stocks. Gasoline inventories rose to their highest levels in almost a year – a needed salve for the market.
U.S. refined product supplied – a measure of demand – surged again, putting the four-week moving average at 21.2 million barrels per day, ahead of pre-pandemic trends. The increases have been led by consumption of distillates like diesel, as gasoline use has been weaker in recent weeks.
Investors across the markets are awaiting the policy update from the U.S. Federal Reserve as the Fed is expected to signal plans to raise interest rates in March to ease inflation.
