Oil prices continued to rally for the sixth week in a row as prices traded near a seven-year high amid expectations of tighter supply due to geopolitical tensions in Eastern Europe over the Ukraine crisis.
Brent, the benchmark for two thirds of the world's oil, settled 0.77 per cent higher at $90.03 per barrel when markets closed on Friday. West Texas Intermediate, the gauge that tracks US crude, was up 0.24 per cent to trade at $86.82 per barrel.
“Crude prices have been on fire, rising for a sixth straight week as the demand outlook improves and over geopolitical fears could lead to severe production disruptions,” said Edward Moya, senior market analyst at Oanda.
“The supply side continues to support a tight market as Opec+ is expected to stick to their plan of increasing output by 400,000 bpd in March, even though their compliance last month only hit 60 per cent of plan.”
The Opec+ group, led by Russia and Saudi Arabia, will meet on February 2 to decide future production cuts that are being carried out as part of a pact formed in 2020 to support the oil market. The 23-member group stuck to its plan to increase production by 400,000 barrels a day for February.
Crude has remained buoyant over the past few days as geopolitical tensions intensify, especially in Eastern Europe. The Pentagon has placed 8,500 US troops on high alert over the Ukraine crisis following Russia's move to station thousands of troops along the Ukraine border.
"The elevated oil price was driven by a number of factors, including a strong global demand recovery despite Omicron-related uncertainty, a weaker-than-planned Opec+ production increase due to supply disruptions and capacity constraints (Libya and Kazakhstan)," said Abu Dhabi Commercial Bank's chief economist Monica Malik and economist Thirumalai Nagesh.
"Rising geopolitical tensions, particularly in Eastern Europe, have also helped the oil price in recent weeks. We believe that the diminishing surplus capacity within Opec+ will remain key fundamental support for oil prices in 2022."
Oil prices have rallied more than 10 per cent this year as global economies continued to recover from the pandemic pushing demand higher. Restrained production from Opec+ is also supporting oil prices. Crude rose more than 67 per cent last year.
ADCB expects global oil demand in 2022 to surpass the 2019 levels, led primarily by non-Organisation for Economic Cooperation and Development countries such as India and China.
However, there remain a number of uncertainties around the demand outlook, including a tight monetary policy outlook and risks related to new Covid mutations and varying policy approaches to contain the virus, said the bank.
So far, the dominant strain of Covid-19 has not affected the crude market significantly, according to analysts.
“Now that $90 [per barrel] oil is here, it won’t take much to get prices to $100 and that will just intensify the global energy crisis,” Mr Moya said. “News of an Omicron sub-variant have not rattled markets as boosters appear to still be getting the job done.”
England and other countries have eased Covid-related restrictions as the Omicron variant, first detected in South Africa in November, is not leading to severe admissions to hospital. England also dropped the face mask requirement in public places amid easing concerns on the severity of the Omicron variant.