Rystad Energy: Oil Markets Near 7-Year High on Continued Tensions, Supply Tightness
Oil markets are experiencing a degree of inflation immunity today as benchmarks rise despite the US Federal Reserve’s announcement that an interest rate hike will come in March, a move that would typically provide some downside pressure on prices.
The bullish momentum is primarily driven by military tensions and uncertainty in the Middle East and Eastern Europe, where the continued uncertainty surrounding Russia and Ukraine could jeopardize a significant portion of Russian oil flows should diplomatic talks break down and energy exports sanctions materialize.
Markets should have calmed somewhat on the Fed news and the reaffirmation of the slowing of the economy, posing a rise to GDP and oil demand, but the short supply market and geopolitical tensions kept Brent crude prices at highs not seen since the pre-oil price crash of autumn 2014.
Oil prices of $90 per barrel will not be received well by high-demand countries, mainly developed Asian economies such as India, with widespread protests in Kazakhstan over high fuel prices a good recent example of the potential fallout.
The Fed’s announcement of a minor tweak to US monetary policy is unlikely to drag down rising commodity prices immediately or even impactfully, as other supply-side constraints outweigh its impact.
Now, all eyes turn to next week’s OPEC+ meeting for signs of the supply tightness lifting and oil prices coming back down to earth.
OPEC+ underperformance and inaction support elevated oil prices as the group has underdelivered against its stated production targets by hundreds of thousands of barrels and has committed to a passive role in the conversation despite external pressure primarily from the US, to increase production and ease fuel prices.
The supply impetus that could calm markets and quell the demand for more production will need to come from OPEC+ and be steered by the member with the largest spare capacity, Saudi Arabia, when they meet next week on February 2.
