Energy

Oil hits seven-year highs as U.S. storm heightens supply concerns

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A pumpjack extracts oil near Crane, Texas, U.S., on Sunday, Jan. 30, 2022.
Matthew Busch | Bloomberg | Getty Images

Oil prices reached seven-year highs on Friday as geopolitical tensions and a winter storm in the United States fuelled concerns over supply disruptions.

Brent crude advanced 2.37% to end the day at $93.27 per barrel. U.S. West Texas Intermediate crude settled 2.26% higher at $92.31 per barrel.

Both benchmarks were on course for a seventh consecutive weekly gain.

"It may just be a matter of time until we're closing in on triple figures," said Craig Erlam, senior market analyst at OANDA.

A winter storm in Texas is behind the latest oil price rally, fuelling concerns about production outages in the Permian Basin, the largest U.S. shale play.

Tight oil supplies pushed the six-month market structure for WTI into steep backwardation of $8.60 a barrel on Friday, the widest since November 2021.

Backwardation exists when contracts for near-term delivery are priced higher than those for later months, encouraging traders to release oil from storage to sell it promptly.

Oil markets have also gained support from tensions surrounding the Ukraine crisis, which have heightened concerns over oil supplies that are already tight.

"The late-session recovery in oil prices was also aided by fresh evidence of OPEC's struggle to raise output," said Stephen Brennock of oil Broker PVM.

The Organization of the Petroleum Exporting Countries (OPEC) and allies led by Russia, together known as OPEC+, agreed this week to stick to moderate output increases of 400,000 barrels per day (bpd), with the group already struggling to meet existing targets and despite pressure from top consumers to raise production more quickly.

Iraq, OPEC's second-largest oil producer, pumped well below its OPEC+ quota in January, data from state-owned marketer SOMO showed on Thursday.

OPEC+ member Kazakhstan, meanwhile, wants more of its oil output to stay at home to tackle rising fuel prices.

Commerzbank has raised its oil price forecast for the first quarter of 2022 to $90 a barrel, up from $80 previously.

Over the medium term, however, Citi Research expects the oil market to flip into surplus as soon as the next quarter, helping to put the brakes on the recent surge in prices.