Oil futures: Supply constraints underpin further gains, Brent around $85.50/b

14 Jan 2022

Quantum Commodity Intelligence – Crude oil futures Friday were higher, extending the strong gains from this week as supply constraints continue to underpin sentiment.  

Front-month March ICE Brent futures were trading at $85.60/barrel (1630 GMT), compared to Thursday’s settle of $84.47/b.

At the same time February NYMEX WTI was trading $83.39/b, versus Thursday’s settle of $82.12/b.

Front-month Brent was up around 4.7% on the week, while WTI was up by 5.7%. 

Crude prices had eased lower earlier in the session as political pressure grew for the White House to lobby OPEC+ to pump more oil, while the market shrugged off reports that China was set to release strategic reserves in a bid to calm prices.

“The fundamentals continue to look bullish for oil. Temporary disruptions in Kazakhstan and Libya are close to being resolved, with the latter taking a little longer to get fully back online. But OPEC being unable to hit output targets at a time when demand remains strong is ultimately keeping prices elevated and will continue to do so,” said Craig Erlam, Senior Market Analyst at Oanda.

A number of banks and analysts have tipped the firm sentiment to continue going forward, as the OPEC+ alliance falls short on quota targets.

“2022 will likely be the year that OPEC production increases test spare production capacity for the first time since 2004,” said Goldman Sachs in a report released Thursday.

Soaring distillate cracks were also underpinning crude prices, while overall refining margins were also buoyant. 

However, there are some concerns that demand from China could ease as further restrictions are introduced to stop the spread of Omicron, while Beijing has also introduced emissions curbs ahead of the Winter Olympics which are likely to cut refining runs.

Chinese aviation authorities ordered multiple US-China flights canceled for the coming weeks, along with other routes from countries including France, Indonesia and the United Arab Emirates, citing the country’s Covid-19 containment rules, reported the WSJ.

In recent days, the Civil Aviation Administration of China has ordered multiple bans on domestic and foreign airlines. Their routes varied—in the latest announcements, those included flights from Los Angeles to Guangzhou, Paris to Shanghai, Jakarta to Wuhan and Abu Dhabi to Shanghai.