Sustained Supply Crunch Amid Demand Pushes Crude to Seven-Year High
By Adedapo Adesanya
A continuous global supply shortage and strong demand in the United States, the world’s biggest consumer of oil, pushed the global benchmark crude, Brent, to $86 per barrel, its highest price best since 2014.
The main headline crude in the world appreciated by 0.45 per cent or 39 cents to trade at $86.38 per barrel, while the US crude, West Texas Intermediate (WTI), gained 1.07 per cent or 90 cents to sell at $84.66 per barrel on Tuesday, its best price since October 2014.
Primarily, the market is facing a supply shortage in the midst of faces an energy crunch that is expected to strengthen the market for the remainder of the year.
The rally came ahead of US inventory reports from the American Petroleum Institute (API), an industry group and the US Energy Information Administration on Wednesday.
Analysts expect the latest weekly US oil inventory data to show a 1.9 million-barrel build in crude stocks.
The market also continues to feel the decision by the Organisation of the Petroleum Exporting Countries and allies like Russia (OPEC+) to raise production by 400,000 barrels per day each month, as it has pushed back against calls to boost output faster in response to the surge in prices. Analysts note that it could help solve the situation by pumping double of what it is allowing but the alliance has said there is no need for that.
The latest voice being the Saudi Arabian minister of oil, Prince Abdulaziz bin Salman, that the OPEC+ alliance should maintain its cautious approach to managing global crude supplies given the threat still posed by the pandemic.
He said that producers shouldn’t take the rise in prices for granted even as some members like Nigeria are not managing to hit their output targets.
Market analysts then suggested that the only thing to get OPEC+ motivated is if private US operators signal, they will increase production.
Currently, the Iran nuclear talks appear to be the only major downside risk factor for oil prices as the country’s chief negotiator will have talks with European Union officials this week.
US President Joe Biden will also be present as they discuss energy prices, the Iranian nuclear program and supply chain issues.
A 2.1 million-barrel cargo of Iranian condensate, the most recent delivery from a swap pact between the Middle Eastern nation and Venezuela, is expected to begin discharging on Wednesday at a PDVSA port.