Oil extends gain after weekly advance on tightening market

Oil extended gains after a fourth weekly advance as the market tightened and concerns about the impact of omicron eased.

Futures in London climbed toward $87 a barrel after increasing 5.3 per cent last week. High prices are justified and futures could rise even further, according to Vitol Group, the world’s biggest independent crude trader.

Oil’s market structure has firmed in a bullish backwardation pattern, signaling growing supply tightness.

Oil has rallied more than 10 per cent so far this year, in part due to outages in OPEC+ producers including Libya. The International Energy Agency said last week that global demand has turned out to be stronger than expected, while the physical market is booming as buyers look beyond the spread of omicron.

China’s Covid-zero policy will probably ensure that there’s no omicron outbreak big enough to significantly diminish the use of oil products there, Mike Muller, Vitol’s head of Asia, said on Sunday on a webinar hosted by Dubai-based consultancy Gulf Intelligence. “We’re nowhere near seeing a major demand hit in China.”