West Texas Intermediate rose 2% for the week as robust demand tightened global markets. As supply remains constrained, a chorus of Wall Street banks and oil executives predict a return to $100 oil. Additionally, heightened geopolitical risks driven by fears that Russia could invade Ukraine also contributed to crude’s rise.
“Demand has been strong, supply has struggled a bit and that’s reflected in the market,” Chevron Corp. CEO Mike Wirth said on Bloomberg TV. Wirth added that geopolitical events are having more of an impact on the commodities market now than they have in the past and that $100 oil “is certainly in the realm of what we might see in the next months”.
Oil’s strong start to the year comes despite a slump in global equity markets after the Federal Reserve signaled it was ready to fight inflation. For now, crude prices have defied the allure of weaker risk sentiment elsewhere, with consumption poised to return to pre-pandemic levels.
Attention next week will turn to the Organization of the Petroleum Exporting Countries and its allies as they meet on February 2 to assess the market and decide supplies for March. While OPEC+ has been steadily easing production restrictions, there are concerns that members have not been able to deliver the full volumes promised.
“OPEC+ production has increased gradually, but still not enough to meet demand,” said Rohan Reddy, research analyst at Global X Management, a firm that manages $2 billion in oil-related assets. energy. Moreover, if Russia invades Ukraine, “there are certainly advantages for oil, because not only the sanctions could be taken into account, but theoretically their position within OPEC+ would also be threatened, and they were an important voice in the room there.”
Markets are also paying close attention to Ukraine, fearing that Russia could launch an invasion after massing thousands of troops on the border, which could disrupt energy supplies.
A sign of market strength, prices remain sharply retrograde – an uptrend in which short-term contracts are trading above those further out – indicating tight immediate supply. WTI’s fast time gap was $1.39 a barrel in Friday’s backwardation, down from 23 cents at the start of the month.
As crude advances, prices for key commodities have been driven higher. Wholesale gasoline in the New York market hit the highest seasonal level in three decades of record-keeping. Average US pump prices are heading for a monthly gain after jumping 46% last year.