Oil breaks US $90, supports tight supply, tensions

NEW YORK: Oil touched US $90 a barrel for the first time in seven years on Wednesday and was supported by tight supply and rising political tensions between Russia and Ukraine, which added to concerns about further disruption in an already tight market.

The global benchmark has broken US $90 since October 2014, and Brent crude rose by US $2.15, or 2.4 per cent, to US $90.35 by 12.55 pm EST 1755 GMT. US West Texas Intermediate WTI crude was up US $2.25, or 2.6 per cent, to US $87.86.

Russia has amassed thousands of troops on Ukraine's border, fanning fears of an invasion. The nation is also one of the world's largest oil exporters, and the energy market prices are higher because of fears that Russia's gas supply to Europe could be interrupted.

Tony Blinken, the US Secretary of State, said that the United States will make sure global energy supplies are not interrupted if Russia takes action.

World inventories have declined as producers struggled to restore production to pre-pandemic levels, said Andrew Lipow, president of Lipow Oil Associates in Houston. The prices of Ukraine and the United States have continued their march upward because of the geopolitical tensions between the United States and Russia. US President Joe Biden said on Tuesday that he would consider personal sanctions against President Vladimir Putin if Russia invades Ukraine. On Monday, Yemen's Houthi movement launched a missile attack on a United Arab Emirates base.

There are concerns about the various factors that contribute to an already tight market, because of the geopolitical tensions. The United States is more than a million barrels short of its record daily output, and the OPEC is having trouble meeting its monthly production targets as it restores supply to markets after drastic cuts in 2020.

Demand remains strong, suggesting that inventories may decline at the same time.

Historically, markets led higher by tightening product and crude inventories, which are difficult to solve without a demand destruction event or an injection of supply. In a note, Michael Tran, commodity strategist at RBC Capital Markets, wrote that neither appears on the horizon.

The Organization of the Petroleum Exporting Countries and allies, known as OPEC, meets on February 2 to discuss another output increase.

In the last week, crude inventories in the United States increased by 2.4 million barrels, against expectations of a modest decline in stocks. In almost a year, inventories of gasoline rose to their highest levels - a needed salve for the market.

The four week moving average was 21.2 million barrels per day, ahead of the pre-pandemic trends, as the US refined product supplied as a measure of demand surged again. The consumption of distillates, like diesel, has led to increases in gasoline use, as gasoline use has been weaker in recent weeks.

The Fed is expected to announce plans to raise interest rates in March as it focuses on fighting inflation.