Oil Rally Accelerates as WTI Heads for Sixth Weekly Advance

(Bloomberg) — Oil headed for a sixth straight weekly gain, with prices trading near a seven-year high on signs of robust global demand.

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West Texas Intermediate rose above $87 a barrel, taking its lead this week to more than 2%. The U.S. benchmark hit its highest level since October 2014 on Thursday, as Brent rose above $91. Heightened geopolitical risks brought on by warnings that Russia could invade Ukraine also contributed to crude’s rise.

Oil surged through 2022 as a host of favorable factors combined to push prices higher. Global consumption continues to recover from the hit of the coronavirus pandemic, major stocks are running low and physical markets are strong. The price spike came despite a jump in the dollar after the Federal Reserve signaled it was ready to fight inflation.

The focus next week will be on the Organization of the Petroleum Exporting Countries and its allies as they meet on Feb. 2 to assess the market and decide on supply policy. Although the group has regularly eased production restrictions, some fear that the members have not been able to deliver the full volumes promised.

“It’s very difficult to talk about any direction at this point,” said Suvro Sarkar, a Singapore-based energy analyst at DBS Bank Ltd., adding that prices factor in a $5-$7 premium in due to geopolitical risks. “The OPEC+ meeting is a non-event. In the short term, it’s all about the flow of news related to Ukraine.

A sign of market strength, prices remain sharply retrograde – trending up as short-term contracts trade above those further out – indicating tight immediate supplies. Brent’s fast time gap was $1.20 a barrel in backwardation, down from 41 cents at the start of the month.

US President Joe Biden has told his Ukrainian counterpart, Volodymyr Zelenskiy, there is a “distinct possibility” that Russia could invade in February. Moscow, meanwhile, is evaluating US proposals aimed at defusing the crisis.

“If the aggressiveness eases off a bit, maybe we’ll see a correction,” DBS’ Sarkar said. “If we are unlucky enough to see hostilities escalate, then of course oil could even hit $100 or more.”

As crude advances, prices for key commodities have been driven higher. Wholesale gasoline in the New York market hit the highest seasonal level in three decades of record keeping. Average US pump prices are heading for a monthly gain after jumping 46% last year.

More and more banks are predicting that the recovery in oil will continue, with several predicting that crude could rise to triple digits. Among them, Saxo Bank A/S said this week that Brent could break above $100 a barrel in the second half as global demand is unlikely to peak anytime soon.

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