Oil prices steadied after reaching a 10-month high amid a surge in broader risk-off sentiment. The rally in oil prices had been driven by supply cuts from OPEC+ and comments from Saudi Arabia’s energy minister, but the market cooled off as investors became more cautious.
There is speculation that shrinking supplies could push oil prices to $100 per barrel. Industry leaders like Chevron CEO Mike Wirth and analysts at Citigroup have made predictions about a potential return to $100 oil.
Global benchmark Brent futures came close to reaching $96 per barrel, the highest since November, before retracing and settling at $94.34. According to Dennis Kissler, a senior vice president for trading at BOK Financial Securities, the new target for US futures is around $95. However, he also warned that crude futures are vulnerable to negative news that could trigger a major correction.
The recent surge in oil prices has caused major movements in timespreads, which are indicators that are closely watched in the market. Brent and West Texas Intermediate (WTI) are now trading in backwardation, indicating tight supplies, with a difference of over $1 at the front of the curve. Real-world barrel premiums have also risen, particularly in the US.
The rise in oil prices can be attributed to the supply cuts agreed upon by Saudi Arabia and Russia to reduce inventories and increase prices. Additionally, the improving outlook in the US and Chinese economies has supported the increase in prices.
Saudi Arabian Energy Minister Prince Abdulaziz bin Salman stated that OPEC is focused on keeping markets stable and ensuring energy security, without targeting a specific price. Output plans will be reviewed on a monthly basis.
The surge in energy costs is expected to increase inflationary pressures, which could complicate the task for central bankers. The Federal Reserve, Bank of England, and Bank of Japan are all meeting this week to discuss their policies. The rising prices also pose a political challenge for the Biden administration, as average retail gasoline prices are already at a seasonal record.
Sources:
– Dennis Kissler, Senior Vice President for Trading at BOK Financial Securities
– Saudi Arabian Energy Minister Prince Abdulaziz bin Salman
Definitions:
– OPEC: Organization of Petroleum Exporting Countries, an intergovernmental organization consisting of oil-exporting nations that work together to coordinate and stabilize oil prices
– Brent: Global benchmark for crude oil prices, used to price two-thirds of the world’s internationally traded crude oil supplies
– West Texas Intermediate (WTI): Another benchmark for crude oil prices, specifically for oil produced in the United States