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Oil prices continued the upward momentum for the 4th consecutive week of the year. Brent crude price closed the week higher at $90.03 per barrel, WTI closed the week higher at $86.82 per barrel. Brent / WTI spread has further widened to $3.21 per barrel.
Oil prices keep moving higher because of strong demand and depleting inventories. I don’t think oil markets are being extremely bullish as a result of geopolitical tensions, but because of strong market fundamentals and the belief of an undersupplied market.
The latest figures from the Commodity Futures Trading Commission (CFTC) on January 25, 2022 showed that long positions on crude oil futures on the New York Mercantile Exchange (NYMEX) numbered 515,949 contracts, down by 9,466 contracts from the previous week (1,000 barrels for each contract).
This is very surprising drop in futures contracts though prices closed the week on the highest level since 7 years but speculators are still shying away and believe of limited prices spike.
Oil futures speculators keep on asking themselves how much will prices increase from these levels, they are very concerned about inflation and wondering how many interest rates hikes will happen in the US this year.
As oil prices continue rising, central banks in big consuming economies might consider raising interest rates sharply trying to push down oil prices as higher interest rates should turn down prices, yet we ever know what could be reflected on prices.
Huge upstream CAPEX cuts (under investment) set the stage for higher oil prices outlook with oil demand expected to exceed the pre-pandemic level. Therefore, some oil media question OPEC producers ability to boost output much with most of the global spare capacity is currently held by Arabian Gulf producers. However, Saudi Arabia is effectively capable to offset low spare production capacity if needed and that might alleviate the prolonged oil price rally, again we never know if increasing oil output can stop prices upward momentum.
*Energy Adviser (former OPEC and Saudi Aramco)