Crude oil closes in on seven-year high

Geopolitical shifts are helping crude oil reach highs not seen since 2015 as prices continue to rise.

Crude oil trading

Oil benchmarks rise ahead of OPEC meeting

Crude oil prices edged higher after a robust trading session late last week, with solid price action carrying over through Monday into the Tuesday morning session.

This marks the sixth consecutive week of gains for WTI and crude oil on the whole.

The start of the previous week say crude oil prices soften, but now they’re rallying again.

At the time of writing, West Texas Intermediate was trading for around $88.27.

Brent crude, on the other hand, was trading a bit more sideways at $89.34. The North Sea benchmark had reached over $91 in last Friday’s trading session.

Political turmoil in the Middle East and especially Ukraine are contributing to the current high futures prices. Traders appear to be betting on supply constraints thrown up by a potential Russian invasion of Ukraine.

If such a massive event were to take place, then Russian output would likely be massive affected, or at least a large chunk of its supplies would go to feed the war machine. Alternatively, the US would likely slap major sanctions on Russia.

An attack from Yemeni rebels on UAE infrastructure was thwarted last week too with the interception of a ballistic missile coming from Yemen. This was the third such attack in two weeks. We’ve seen oil get a support in previous similar situations, such as rebel attacks on Saudi Aramco infrastructure.

With supply chain disruption, the basic principles of supply and demand kick in, thus putting a support under prices. As it stands, traders look like they’re pricing in such disruptions, and putting that against increased post-pandemic demand.

Where next for oil? $90 is the target, although the above geopolitical situations could push it closer to the $100 mark that many have predicted will occur in 2022. Keep watching the unfolding Middle Eastern and Ukraine situations.

OPEC-JMMC February meeting takes place this week

OPEC’s next monthly meeting takes place on Wednesday.

Expect much the same as we’ve seen at pretty much all recent OPEC+ meetings: a commitment to increase output by 400,000bpd in March.

Cartel members are confident demand will continue to rise as the world pulls out of the pandemic economy and heads back to a form of normality. This comes despite the fact many of the smaller OPEC states are reaching full capacity. Having none to spare can prove a risk, due to the fact it leaves them vulnerable to rapid demand or supply changes.

Some OPEC sources may feel the fact that crude is touching $90 may necessitate a strategic rethink. Everything the cartel has done across the pandemic has been to protect and raise prices. Of course, it’s unlikely that OPEC+ members will want to see a reduction in crude oil prices, but a recalibration could be percolating around the brains of OPEC’s policymakers.

Realistically, expect to see another scheduled production hike from the world’s foremost oil cartel moving forward.

US rig counts up but production falls

The most recent Baker Hughes rig count showed an increase after rig counts were cut in the previous review period.

The oil services firm said rig counts rose by four in the week ending January 21^st, bring the total up to 495.

Despite this addition, the United States’ oil output shrank during the review period. Energy Information Administration data showed production fell to 11.6m during the review period. That is 100,000 bpd less than the previous week.

In terms of inventories, US commercial crude oil inventories increased by 2.4 million barrels from the previous week in the week ending January 21st.

At 416.2 million barrels, U.S. crude oil inventories are about 8% below the five-year average for this time of year.

Total motor gasoline inventories increased by 1.3 million barrels last week and are about 2% below the five-year average for this time of year.