The price of Oman crude gained $1.76 a barrel to reach $86.70 in trading on the Dubai Mercantile Exchange (DME), tracking spikes in international benchmarks that soared on Tuesday in response to attacks in the Arabian Gulf region.
Prices have climbed to seven-year highs in recent days largely due to perceptions of a tight market supply situation. Tuesday’s attacks on, among other locations, oil storage facilities on the Arabian Peninsula, have added to market jitters of possible supply disruption.
Reuters reported that Brent crude futures rose $1.02, or 1.2 per cent, to $88.13 a barrel by 0924 GMT, while US West Texas Intermediate (WTI) crude futures jumped $1.36, or 1.6 per cent, to $85.74 a barrel. Trade on Monday was subdued as it was a US public holiday. Both benchmarks touched their highest levels since October 2014 on Tuesday.
Supply concerns have risen this week after Yemen’s Houthi group attacked sites in the United Arab Emirates. UAE oil firm ADNOC said it had activated business continuity plans to ensure uninterrupted supply of products to its local and international customers after an incident at its Mussafah fuel depot.
Also adding to geopolitical price premiums are rising tensions between Opec+ member Russia and Ukraine.
In addition, some producers within the Organisation of the Petroleum Exporting Countries (Opec) are struggling to pump at their allowed capacities, due to underinvestment and outages, under an agreement with Russia and allies to add 400,000 barrels per day each month.
“The consensus is that the situation will not improve in the foreseeable future and oil demand growth together with supply constraints is inevitably leading to a tighter oil balance,” PVM analyst Tamas Varga said.
Goldman Sachs analysts said they expected oil inventories in OECD countries to fall to their lowest since 2000 by the summer, with Brent oil prices rising to $100 later this year.
The hit to demand from Omicron will likely be offset by gas-to-oil substitution, increased supply disruptions, Opec+ shortfalls, and disappointing production in Brazil and Norway, the analysts wrote in a note dated Monday.
Global oil demand is seen rising 3.5 million barrels per day (bpd) year-on-year in 2022, with fourth-quarter demand reaching 101.6 million bpd.
Goldman expects OECD inventories to fall to their lowest level since 2000 by summer, and Opec+ spare capacity to decline to historically low levels, given the lack of drilling in core-Opec and Russia struggling to ramp up production.
“We expect the increase in Opec+ production to fall even further short of quotas in 2022, with an only 2.5 million bpd increase in production expected from the next nine hikes.”
Higher prices will allow Opec to fall behind its monthly ramp up path slightly in order to preserve spare capacity, with the acceleration in shale production growth providing necessary inventory buffer, Goldman added.
The bank also pushed its Iran production ramp-up expectations to second quarter of 2023, citing lack of progress on the Iran nuclear deal negotiations.
It sees Brent prices at $90 per barrel in the first quarter of 2022, $95 in the second quarter and $100 per barrel in the last two quarters. (With inputs from Reuters)
