Oil holds near $121 as investors weigh tightening markets
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Oil holds near $121 as investors weigh tightening markets

Oil holds near $121 as investors weigh tightening markets

Crude has rallied about 60 per cent this year as an economic rebound coincided with upended trade flows

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Oil traded near $121 a barrel as investors weighed a tight supply outlook and the impact of China’s eventual return from virus curbs.

Supplies remain much tighter than during other recessionary periods and prices could withstand a possible economic slowdown, oil historian and S&P Global vice chairman Daniel Yergin said in a Bloomberg Television interview. West Texas Intermediate fluctuated after closing 0.2 per cent higher on Monday, shrugging off a broader market rout following an increase in US inflation.

Crude has rallied about 60 per cent this year as an economic rebound coincided with upended trade flows after the Russia-Ukraine crisis. While China is facing a bumpy return from strict Covid-19 lockdowns, rising consumption from the top importer will strain the market further and drive prices higher.

The Ukraine crisis has exacerbated a tightening of the crude and fuels markets, and fanned inflation worldwide. The supply situation is “razor thin,” said Yergin. “Fundamentally, the outlook remains constructive, given the tightness,” said Warren Patterson, head of commodities strategy at ING Groep in Singapore. “A tighter market also means the potential for increased volatility.”

Some Asian buyers have been snapping up Middle Eastern oil earlier than usual in the physical market, in a sign of robust demand. The spot buying activity, which normally picks up pace after the release of official selling prices, started even before Iraq, Kuwait and Iran had made their announcements.

Falling Libyan output is putting strain on light-sweet oil markets. On Monday, the North Sea’s Brent, Forties and Ekofisk grades were all being bid at higher levels than Friday – when Forties traded at its highest in over a decade.

Brent’s nearest futures contract was trading more than $3 above the next month, a premium that indicates scarce supply of the crudes that underpin the global benchmark, including those from the North Sea.

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