Oil Specs Betting on Potential Supply Disruptions

U.S. West Texas Intermediate and international-benchmark Brent crude oil futures are edging higher on Friday, putting them in a position to post their sixth consecutive weekly gain, as geopolitical tensions continue to raise supply concerns.

At 14:05 GMT, March WTI crude oil futures are trading $88.58, up $1.93 or +2.24% and April Brent crude oil is at $91.10, up $1.76 or +1.97%. On Friday, the United States Oil Fund ETF (USO) is at $62.76, up $0.90 or +1.46%, shortly after the cash market opening.

Potential Supply Disruptions Driving Prices Higher

WTI and Brent crude oil continue to receive support from concerns that the Ukraine crisis could disrupt energy markets. Russia has massed troops near Ukraine’s border but says it does not plan to invade.

Earlier in the week, the U.S. Embassy in Kyiv urged American citizens in Ukraine to consider departing now, saying that the security situation in the country was “unpredictable due to the increased threat of Russian military action.”

In Washington, Secretary of State Antony Blinken said the U.S. Embassy in Kyiv would remain open but added that Americans in the former Soviet country should “strongly consider leaving.”

OPEC+ Expected to Stick to Planned March Output Target Increase

OPEC+ will probably stick with a planned increase in its oil output target for March when it meets on Wednesday next week, several sources from the producer group said, as it sees demand recovering despite downside risks from the pandemic and looming interest rate rises.

While two OPEC+ sources said oil at a seven-year high close to $90 a barrel might prompt the group to consider further steps, the vast majority of sources said no new decision was expected at the February 2 online meeting.

China’s 2022 Crude Imports Seen Rebounding

China’s crude oil imports could rebound by 6-7% this year, reversing 2021’s rare decline as buyers step up purchases for new refining units and to replenish low inventories, analysts and oil company officials said.

Short-Term Outlook

With Omicron in the rearview mirror, most crude oil speculators are putting their focus on supply.

Even before bullish specs climbed on board in anticipation of potential supply disruptions from an escalation of the Ukraine crisis, supply scarcity was pushing the six-month market structure for Brent into steep backwardation. Currently, it sits at $6.56 a barrel, or its widest level since 2013.

Some traders fear the sharp rise in the U.S. Dollar could pare gains, but others are saying crude oil imports in China, the world’s biggest importer of the commodity, could rebound by as much as 7% this year.

Nonetheless, the bullish price action suggests demand will more than offset the expected rise in OPEC+ production. Furthermore, conflicts in Ukraine and the Middle East could disrupt supply at any time.