Brent oil surged to the highest level in seven years as physical markets run hot in the world’s largest consuming region and Goldman Sachs Group Inc. said prices are headed for $100 a barrel.
Futures in London surged as high as $88.13 a barrel, a level last seen in October 2014. With fears fading over the demand impact from omicron, traders are paying higher and higher premiums to get hold of cargoes in Asia. That’s a sign that they view the market as tight, and is underpinning this year’s 13% rally in headline prices.
Goldman Sachs raised its Brent forecasts through 2022 and 2023 and predicted $100 oil in the third quarter. Robust fundamentals have reversed a price slump last year, keeping the market in a surprisingly large deficit, with the omicron variant having so far had a much smaller impact on demand than delta, it said.
“We’re witnessing a boost from a tight market, and the physical market is rallying further from the current, strong refining margins,” said Grayson Lim, a senior crude market analyst at industry consultant FGE.
Crude has made a red-hot start to the year with outages at producers including Libya adding to the bullishness brought about by strong demand. There are upbeat signals from across the oil complex, from diesel to jet fuel, which is soaring in Europe as air travel withstands the omicron impact. OPEC is set to release its monthly report later Tuesday, providing its snapshot of the market.
The physical-market strength has been compounded by renewed tension in the Persian Gulf, home to about 40% of the world’s seaborne oil.
Yemen’s Houthi fighters claimed to have launched a drone strike on the United Arab Emirates that caused an explosion and fire on the outskirts of the capital Abu Dhabi. The nation is the third-largest producer in OPEC.
“Sentiment in the market remains constructive, and the attack on the UAE has offered only a further boost to prices,” said Warren Patterson, the head of commodities strategy at ING Groep NV. “Supply disruptions coupled with firm demand has meant that the oil market is tighter than expected.”
