Oil Edges Higher as Investors Expect Tighter Supply

January 18, 2022
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By Adedapo Adesanya

Oil prices rose further on Monday with investors betting that global supply will remain tight, keeping the Brent crude up by 42 cents or 0.49 per cent to $86.48 per barrel as the West Texas Intermediate (WTI) crude oil futures grew by 46 cents or 0.55 per cent to $84.28 per barrel.

Crude oil prices have posted four consecutive weeks of gains, which is the longest winning streak since October, in evidence that the demand recovery remains robust as fears about the effect of Omicron die down.

News that China will release oil from its strategic reserve next month had the potential to disrupt the rally but did not, with Brent crude reaching a two-month high last week and still traded at over $86 per barrel at the opening session.

The world’s largest exporter plans to release oil reserves around the Lunar New Year holidays between January 31 and February 6 as part of a plan coordinated by the United States with other major consumers to reduce global prices.

Supply outages and signs the Omicron variant will not be as disruptive as feared for fuel demand are the foundations that the market has built its bullish sentiment on.

This is also happening as the Organisation of the Petroleum Exporting Countries and allies (OPEC+) is not providing enough supply to meet the strong global demand.

Even as the alliance is gradually relaxing output cuts implemented when demand collapsed in 2020, many smaller producers like Nigeria cannot raise supply and others have been wary of pumping too much oil in case of renewed COVID-19 setbacks.

The market was pressured by a rise in Libyan output with the country’s oil production rebounding to 1.2 million barrels daily, meaning that its crude oil output was back to normal after a series of outages.

Libya’s oil production dropped sharply earlier this month after the National Oil Corporation shut down a key pipeline for much-needed repairs. The pipeline shutdown led to a 200,000-barrel per day decline in production.

That came on top of the latest field blockade by the Petroleum Facilities Guard that began in December and involved four fields, including El Sharara.

The market also relaxed fears that Russia was preparing to attack Ukraine if diplomacy failed with the US government moving on contingency plans for supplying natural gas to Europe if the conflict between both countries disrupts Russian supplies.

Adedapo Adesanya

Adedapo Adesanya is a journalist, polymath, and connoisseur of everything art. When he is not writing, he has his nose buried in one of the many books or articles he has bookmarked or simply listening to good music with a bottle of beer or wine. He supports the greatest club in the world, Manchester United F.C.

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