A worker walks past a pump jack on an oil field owned by Bashneft company near the village of Nikolo-Berezovka, northwest from Ufa, Bashkortostan, Russia. Photo: Reuters
Nicola Mawson
As Brent crude oil prices pushes higher on lower supply impacted by geopolitical concerns affecting Russia in its war on Ukraine and a colder winter in the northern hemisphere, some commentators believe it could push through $85 (R1 628) a barrel.
Bianca Botes, a director at Citadel, said that crude rose above $81 barrel after a 4% surge on Friday, driven by US sanctions targeting Russian oil exports, insurers and tankers.
“Higher oil prices could further complicate central banks’ inflation control efforts,” she said. This morning, it was trading at $81.29, a 1.92% gain on yesterday.
Chris Weston, the head of research at Pepperstone, noted that, with lower supply, many commentators were now questioning whether the Brent crude price could push past $85 to the barrel.
He said, “The crude market has come alive, with the buyers now in firm control of the tape,” which he noted followed a “sleepy” period between October and December last year.
Weston said supply is the key near-term driver, with Biden’s fresh sanctions on Russia’s two main oil producers and Russian tankers further complicating the logistical challenges Russia now faces.
“Biden has packaged this as offering Ukraine increased leverage for when Trump looks to broker peace talks, but there is no doubt the further rise in crude will not sit well with Trump's grand plans to dramatically lower energy prices,” said Weston.
In addition, said Weston, the northern hemisphere was seeing a cold snap that was adding to the demand for crude oil for heating purposes, while there had also been a drawdown on inventories, which was resulting in “buyers moving price higher with increasing ease”.
Andre Botha, the head of execution at TreasuryONE, said, however, that Brent crude has encountered resistance at $81. He noted that supply concerns are tightening, with Brent futures showing stronger “backwardation,” indicating reduced supply or higher demand. Backwardation is a situation in which the offer price for stock is lower than the bid price.
“Global oil demand is expected to increase by 1.4 million barrels per day in January, driven by colder weather and increased travel in China for the Lunar New Year,” he added.
Botha explained that geopolitical factors, particularly tensions in Russia and Iran, are further supporting the oil market rally.
“A recent fire at an oil depot in Russia’s Volga region, reportedly caused by a Ukrainian drone attack, has heightened concerns over the security of Russian oil infrastructure. This incident, near a Russian military air base, increases the risk of supply disruptions at a key facility,” said Botha.
He noted that new US sanctions on Russia’s energy sector, targeting oil companies and shipping vessels, add to the strain on Russia’s ability to export oil. “Russia has condemned these sanctions, warning of potential destabilising effects on global markets.”
However, said Botha, the strong US dollar and Federal Reserve interest rate policies could limit oil price growth looking ahead.
Old Mutual chief economist Johann Els concurs with Botha, noting that the gains in the price are short-term moves based on the cold weather and an increase in Chinese travellers because of the Lunar New Year.
“Oil has pushed up a little bit more than expected in early January, but I think that's in line with colder than expected weather in the Northern Hemisphere and, thus, there's strong demand for heating fuel,” said Els.
Yet, Els said the price was still overall contained at around the $80 a barrel level and should remain at that point for the rest of the year. He said that this would generally be good for local fuel prices.
BUSINESS REPORT