Oil set for third weekly advance as market tightens on outages

Oil was poised for a third weekly gain as demand remained resilient while supplies are frayed across the OPEC+ coalition and beyond.

Futures increased again on Friday to trade near $80 a barrel in New York, bringing this week’s increase to almost 7%. Kazakhstan’s biggest oil producer has altered output at the giant Tengiz field following protests in the country, while Libyan production has also been crimped. Oil’s market structure has firmed in a bullish backwardation structure, signaling growing supply tightness.

The OPEC+ alliance this week stuck with a scheduled output boost of 400,000 barrels a day for February, but the group is unlikely to meet that threshold as some members struggle to achieve their targets. Production in Libya has declined amid militia unrest, while Russia also failed to boost volumes last month.

“The recent oil-price rally has clearly been supported by the supply side,” said Helge Andre Martinsen, senior oil analyst at DNB Bank ASA in Oslo.

Prices

  • West Texas Intermediate for February delivery rose one per cent to $80.25 a barrel on the New York Mercantile Exchange at 9:44 a.m. London time after climbing 2.1 per cent on Thursday.
  • Prices are up 6.7 per cent this week.
  • Brent for March settlement was 0.9 per cent higher at $82.69 a barrel on the ICE Futures Europe exchange.
  • Backwardation in Brent’s prompt timespread was at 76 cents, compared with 43 cents a week earlier.

The operator of Kazakhstan’s Tengiz field, known as TCO, declined to provide further details on the size of the output adjustment, but it said that production operations were continuing. TCO is a joint venture led by Chevron Corp. that pumps about a third of the OPEC+ nation’s oil.

A deep freeze in Canada and the northern U.S. has also disrupted oil flows this week. That’s coincided with shrinking American crude inventories, which have declined every week since November.

© 2022 Bloomberg L.P.

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