Oil market getting stronger as prices power up to $93

Bloomberg

Oil has rocketed to a fresh seven-year high near $93 a barrel, and almost every indicator is pointing to the rally extending.
The market’s structure is trading at its strongest level in years, indicating scarce supply. Diesel — the fuel that helps power the global economy — is also surging as a cold snap hits the US and demand soars. Inventories at key storage hubs are waning, and vital price gauges indicate an expectation the tightness will persist.
Traders increasingly suspect demand is being underestimated as economies emerge from Covid-19. Saudi Arabia’s state oil company said late last month that consumption will soon return to pre-pandemic levels, though International Energy Agency (IEA) data show it about 1 million barrels a day lower in the first quarter than during the same period in 2019.
Meanwhile, supply outages from Libya to Ecuador to Nigeria have limited production of the light-sweet oil that underpins global crude benchmarks. There’s also a growing geopolitical risk premium as Russia amasses troops near Ukraine, though President Vladimir Putin has said his country has no plans to invade.
“This market is extraordinarily tight,” said Gary Ross, a veteran oil consultant turned hedge fund manager at Black Gold Investors LLC. “We have low inventories, tight balances, great margins, geopolitical risk. This is a very bullish market.”
All of that is coming as Opec+ struggles to lift output by 400,000 barrels a day it has pledged each month. In January, Opec’s 13 members added just 50,000 barrels a day, fanning trader concerns that the market’s spare capacity buffer is dwindling.
The rally means a return of $100 oil is growing increasingly likely by the day. For months, options markets have been abuzz with trading of contracts above that level. There are the equivalent of almost 112 million barrels of $100 calls for the global Brent benchmark over the next 12 months. Call options sold by banks in the $90s are also likely contributing to oil’s move higher.
On Friday, headline prices rise again, adding 1.8% to $92.76 in London. West Texas Intermediate was up 1.9% to $92.01. The latter is up about 6% this week.
One of the clearest signs of strength in refined fuels is diesel. Demand in the US in recent weeks has been at, or close to, the highest level for the time of year in at least three decades. Stockpiles on the nation’s East Coast, the delivery point for the Nymex heating oil futures contract, are the lowest since April 2020. In Europe they’re the lowest at a key storage hub seasonally since 2008, according to data from Insights Global.