Oil prices traded within striking distance of a seven-year high on Monday, threatening to drive global inflation up further as supply remained constrained and fears of another pandemic-induced slowdown in demand faded.
Brent, the international benchmark, has climbed more than 10 per cent in the first two weeks of the year to as much as US$86.71 a barrel, exceeding last October's high, to approach levels not seen since 2014 when oil topped US$115.
US oil benchmark West Texas Intermediate has risen more than 12 per cent since the start of year to a high of US$84.78, just under last year's peak. Some analysts are forecasting that the crude benchmarks will trade at more than US$100 a barrel again this year unless there is a significant increase in supply.
"This is such a perilous time right now in the oil market," said Helima Croft, head of global commodity strategy at RBC Capital Markets. "We are in the oil red zone for [US] President [Joe] Biden who is absolutely preparing to ask Opec for more barrels."
US consumer price growth increased 7 per cent year on year in December, the fastest pace since 1982, after a six-month rally in energy markets that has pushed up the cost of living around the world.
The White House has been calling on the world's leading oil producers to increase production faster to help control inflation. But Opec and its allies have stuck to a plan agreed in July last year to replace output cut at the start of the pandemic gradually, by just 400,000 barrels a day each month.
The strategy has helped oil prices track higher since August, and to recover quickly after the rapid spread of the Omicron coronavirus variant in November prompted a sell off.
But not all members of the Opec+ group — which includes producers such as Saudi Arabia and Iraq and allied countries such as Russia and Kazakhstan — have been able to hit their monthly targets, meaning the cartel has been increasing output by slightly less than its planned 400,000 b/d, analysts said.
AdvertisementAdvertise with NZME.
In Europe — where natural gas is trading at historic levels due to high demand, low storage and tight supplies from Russia — fears over a possible Russian invasion of Ukraine are adding to uncertainty in the energy markets.
"Even if there is no supply disruption, [those] tensions are going to push [oil] prices to potentially US$100 a barrel," said Croft.
Bjarne Schieldrop, chief commodities analyst at Swedish financial group SEB, said it would be up to those producers with excess capacity, such as Saudi Arabia, to act if they wanted to prevent prices rising even higher.
"Struggling supply from Angola, Nigeria and Libya, together with exceptionally high natural gas prices and the tight global diesel market, are natural bullish forces for light sweet crude," he said.
"Given this, we might see countering action by those [Opec+] members left with spare capacity even if it means a break of their individual caps in order to prevent the oil price from shooting above US$100 a barrel."
- Financial Times