Brent Closed the week higher, at $87.89 per barrel

Oil prices continued the upward momentum for the third consecutive week. Brent crude closed the week higher at $87.89 per barrel, and WTI closed the week higher at $85.14 per barrel. On the week closing, Brent / WTI spread has widened to $2.75 per barrel.

Though prices have slightly deteriorated by the end of the week, they still made the third consecutive weekly gain. We didn’t see WTI price above $85 since 2014.

The latest figures from the Commodity Futures Trading Commission (CFTC) on January 18, 2022 showed that long positions on crude oil futures on the New York Mercantile Exchange (NYMEX) numbered 525,415 contracts, up by 23,961 contracts from the previous week (1,000 barrels for each contract).

The International Energy Agency (IEA) has acknowledged that even with the surging number of Omicron cases, oil demand defied expectations in the fourth quarter 2021, rising by 1.1 million barrels per day (bpd) to 99 million bpd. Surprisingly however, IEA expects oil demand to set for a seasonal decline in the first quarter 2022, exacerbated by more teleworking and less air travel.

Though OPEC kept its 2022 market forecasts unchanged with demand projected to increase by 4.15 million bpd to hit 100.79 million bpd, OPEC monthly report came with confidence of the strong market fundamentals that sees nothing to fear in the oil market from US Fed interest rate hikes as the robust oil demand will offset the stronger US dollar.

OPEC reported that product markets and refining margins in all main trading hubs rebounded in December from the downturn seen in the previous month. Refining margins reached their second highest levels since May 2020 and inched closer to the record highs seen in October 2202 amid an increasingly tighter product balance in all regions and a pick-up in fuel consumption levels, despite a significant rise in global product output levels and rising COVID-19 cases. OECD product stocks at a deficit of 104 million barrels compared with the latest five-year average.

OPEC reported the latest total OECD commercial oil stocks down by 16 million barrels at 389 million barrels lower than the same period in 2020, and 247 million barrels lower than the latest five-year average.

OPEC reported a weakening market structure of Brent and WTI mainly due to concerns about the rapid surge in COVID-19 cases to record highs in several major consuming countries. However, the continuing decline in global oil stocks and the robust physical crude market kept the market structure in backwardation.

Asian refineries most likely to increase their crude oil imports from the Arabian Gulf and less likely to seek arbitrage crude from the United States. Platts has reported a widening Brent-Dubai spread, which in turn is expected to boost demand for Arabian Gulf barrels. Platts reported March Brent-Dubai Exchange of Futures for Swaps spread (EFS) average $3.60 per barrel month-to-date compared with $2.94 per barrel for the whole of December 2021. A wider EFS makes crude priced against Dubai more economically attractive compared with Brent-linked barrels. The Brent-Dubai EFS is often tracked as an indicator of North Sea low sulfur crude value versus Arabian Gulf high sulfur crude.

Faisal Faeq

Energy Adviser (former OPEC and Saudi Aramco)

Twitter: @FAISALFAEQ