Oil advances as OPEC+ sees tighter market in first quarter

We expect Brent to trade in a USD 80–90/bbl range this year: commodity analyst.
Image: Simon Dawson/Bloomberg
 Oil ticked higher as global supplies are on track to be tighter than previously expected, with fears about a hit to global demand from the omicron variant easing.
Futures in New York rose as much as 2.1% with Brent crude ticking above $80 a barrel even as OPEC+ stuck to its plan to lift output.

With demand largely withstanding the omicron variant, the OPEC+ producer group on Tuesday approved a 400,000 barrel-a-day increase in production scheduled for February, as expected. Its analysts on Monday cut estimates for a surplus in the first quarter, predicting weaker supply growth from rivals.

“Yesterday’s technical OPEC+ committee presentation of a less over-supplied outlook for the oil market in 2022 against its assessment last month seems to have pleased the bulls,” said Bjørnar Tonhaugen, Rystad Energy’s head of oil markets. “We may see more action when we have more clarity over global production in the coming months.”


The overall supply-demand backdrop is looking better for OPEC+. The group’s production increases are likely to be less than the agreed levels as some members struggle. Russia failed to raise output last month while production in OPEC member Libya is expected to fall again this week. The market structure remains in a bullish backwardation pattern, which indicates continued supply tightness.

“The biggest challenge is starting to be to actually implement the theoretical rise in production as more and more producers start to struggle,” said Hans van Cleef, senior energy economist at ABN Amro.

Omicron’s spread isn’t reducing oil demand, given the low level of hospitalizations, Russia’s Deputy Prime Minister Alexander Novak said in an interview with state Rossiya 24 TV.

“We expect oil demand to recover to new record highs and Brent to trade in a USD 80–90/bbl range this year,” said Giovanni Staunovo, commodity analyst at UBS Group AG.

Prices
  • West Texas Intermediate rose 1.4% to $77.13 a barrel at 12:41 p.m. in New York
  • Brent for March settlement gained 1.6% to $80.21

The OPEC+ Joint Technical Committee, which analyzes the market on behalf of ministers, sees a surplus of 1.4 million barrels a day in the first three months of 2022, about 25% less than it estimated a month ago, according to a report seen by Bloomberg.

Meanwhile, China could maintain border restrictions for the rest of this year as it prepares to host the Beijing Winter Olympics and a series of political events, according to Goldman Sachs Group Inc. The country is one of the few nations still committed to a “Covid Zero” approach, potentially hurting demand.

Other oil-market news:
  • OPEC chose veteran Kuwaiti oil executive Haitham al-Ghais to become the organization’s top diplomat, as the group and its allies navigate a delicate recovery from the pandemic.
  • Oil exports from Venezuela doubled in December from a year earlier, with the country raising production of revenue-generating hydrocarbons in defiance of U.S. sanctions.
  • Money managers last week boosted bullish bets on Brent by the most since July.
© 2022 Bloomberg L.P.

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