Supply Constraints, Russian-Ukraine Tension Boost Oil Prices

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By Adedapo Adesanya

Oil prices closed higher on Friday, boosted by supply constraints and worries of a Russian attack on neighbouring Ukraine.

Brent crude appreciated by $1.59 or 1.88 per cent to trade at $86.06 per barrel, while the United States West Texas Intermediate (WTI) rose by $1.7 or 2.07 per cent to settle at $83.82 per barrel.

The rising gap between crude oil quotas from the Organisation of the Petroleum Exporting Countries and allies (OPEC+) and actual production has already been felt in the market.

Traders believe that the OPEC+ group will continue to undershoot—by a lot—its oil production target in the coming months.

Despite easing cuts by 400,000 barrels per day, shrinking global capacity from countries in the alliance and others have contributed to the bullishness of the market.

Prices also moved along that trajectory as traders and speculators expect the Omicron COVID variant to have a mild impact on economies, despite the record cases reported in many countries.

After the initial Omicron scare and sell-offs, the market has taken comfort in estimates that the latest fast-spreading variant will not affect global oil demand.

Earlier in the week, the International Energy Agency (IEA) noted a milder-than-expected demand disruption with global oil demand showing that it is more resilient to the effects of the Omicron variant’s spread than previously expected.

Geo-political tension also spurred the price to shoot higher as the market acted on an intelligence report from the US government that Russia’s pattern of activity could signal a ground invasion of Ukraine within the next 30 days.

Reports show that Russia has massed 100,000 troops on Ukraine’s border, a move that shows that any geopolitical event could boost prices.

The weaker US Dollar also helped the market at the close of the trading week. A weaker dollar makes commodities more affordable for holders of other currencies.

Several banks have forecast oil prices of $100 a barrel this year, with demand expected to outstrip supply.

Issues also remain unresolved in indirect talks between Iran and the United States on reviving the 2015 Iran nuclear deal, a source close to the talks said on Friday.

If the US lifts sanctions on Iran, the country could boost oil shipments, adding to global supply.

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