Oil rally continues as Russia-Ukraine tension mounts

Sustained global demand is also supporting prices that have increased for six weeks in a row

An idle pump jack in Texas. Oil markets opened the week on a positive note on Monday. AP

Oil markets rallied on Monday, continuing the positive momentum from last week amid signs of sustained global demand and growing tension over Ukraine that threatens to disrupt energy supplies.

Brent, the benchmark for two thirds of the world's oil, rose to $91.24 a barrel while West Texas Intermediate, the gauge that tracks US crude, climbed to trade at $88.01 a barrel at 8.24am UAE time.

Crude has remained buoyant in the past few weeks as geopolitical tension continues to rise in Eastern Europe. The Pentagon has placed 8,500 US troops on high alert after Russia stationed thousands of troops along the border with Ukraine.

Russia further boosted its troop presence at the weekend in a sign of a potential escalation that could derail the flow of global energy supplies.

The rise in crude futures comes after an agreement by US politicians to ensure legislation on Russian sanctions is passed by the Senate this week, “racking up tension on Ukraine”, Avtar Sandu, senior manager for commodities at Singapore-based broker Phillip Nova, said in a note to investors.

“World oil markets are widely expected to remain prone to geopolitics in 2022, with ‘sabre-rattling’ over the persistent Russia-Ukraine standoff,” he said.

The Monday rally builds on six consecutive weekly gains. Brent is set for its best January performance in three decades.

Crude prices have already climbed more than 10 per cent this year as global economies continue to recover from the pandemic, pushing demand higher.

Oil rose more than 67 per cent last year as demand was sustained despite coronavirus-driven headwinds.

Restrained production from Opec+ is also shoring up oil prices. The 23-member group, led by Saudi Arabia and Russia, will meet on February 2 to decide future production limits that are in place to support the energy market. Opec+ stuck to its plan to increase production by 400,000 barrels a day for February.

However, top banks and oil companies have forecast that crude may soon pass $100 a barrel, partially driven by oil producers' inability to hit their planned supply output increases in full in recent months.

Underinvestment in oil and gas production over the past few years is also hindering the ability of oil producers to increase output.

Brent may "overshoot" $125 a barrel this year and $150 in 2023, since Opec's spare capacity is below market expectations and impedes its ability to respond to high oil prices, JP Morgan said in December.