Oil market keeps getting stronger as prices power through US$92

Oil has rocketed to a fresh seven-year high near US$92 a barrel, and almost every indicator is pointing to the rally extending.

Oil has rocketed to a fresh seven-year high near US$92 a barrel, and almost every indicator is pointing to the rally extending.

The market’s structure is trading at its strongest level in years, indicating scarce supply. Diesel -- the fuel that helps power the global economy -- is also surging as a cold snap hits the U.S and demand soars. Inventories at key storage hubs are waning, and vital price gauges indicate an expectation the tightness will persist. 

Traders increasingly suspect demand is being underestimated as economies emerge from COVID-19. Saudi Arabia’s state oil company said late last month that consumption will soon return to pre-pandemic levels, although International Energy Agency data show it at about 1 million barrels a day lower in the first quarter than during the same period in 2019.  

Meanwhile, supply outages from Libya to Ecuador to Nigeria have limited production of the light-sweet oil that underpins global crude benchmarks. There’s also a growing geopolitical political risk premium as Russia amasses troops near Ukraine, though President Vladimir Putin has said his country has no plans to invade.

“This market is extraordinarily tight,” said Gary Ross, a veteran oil consultant turned hedge fund manager at Black Gold Investors LLC. “We have low inventories, tight balances, great margins, geopolitical risk. This is a very bullish market.”