Oil touched $90 a barrel for the first time in seven years on Wednesday, supported by tight supply and rising political tensions between Russia and Ukraine that added to concerns about further disruption in an already-tight market.
Brent crude rose $2.15, or 2.4 per cent, to $90.35 by 12:55 p.m. EST (1755 GMT), 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 per cent, to $87.86.
Russia has amassed thousands of troops on Ukraine’s border, fanning fears of an invasion. Energy market prices are higher on worries that Russia’s gas supply to Europe could be interrupted; the nation is also one of the world’s largest oil exporters.
U.S. Secretary of State Tony Blinken said the United States will make sure global energy supplies are not interrupted if Russia takes action.
“World inventories have continued to decline as producers have struggled to restore production to pre-pandemic levels,” said Andrew Lipow, president of Lipow Oil Associates in Houston. “Mix that in with geopolitical tensions between the United States and Russia over Ukraine and prices have continued their march upward.”
U.S. President Joe Biden said on Tuesday he would consider personal sanctions on President Vladimir Putin if Russia invades Ukraine. Separately, Yemen’s Houthi movement launched a missile attack on a United Arab Emirates base on Monday.
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 coming policy update from the U.S. Federal Reserve at 2 p.m. EST. The Fed is expected to signal plans to raise interest rates in March as it focuses on fighting inflation.
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