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Oil Pushes Toward $90; U.S. Inventories Last Piece in Demand Jigsaw 

CommoditiesJan 18, 2022 03:09PM ET
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© Reuters.

By Barani Krishnan

Investing.com - Oil continued its relentless climb higher on Tuesday, helped by a deadly air raid on major producer UAE and  a robust consumption forecast from OPEC that left impending weekly U.S. inventory data as the last piece of the demand jigsaw puzzle.

The Iran-allied Houthi movement launched drone and missile strikes on Sunday which set off explosions in fuel trucks in the United Arab Emirates that killed three people, and warned that it will target more facilities, prompting Abu Dhabi to say that it reserved the right to "respond to these terrorist attacks."

OPEC, which stands for the Organization of the Petroleum Exporting Countries, meanwhile stuck to its forecast for robust growth in world oil demand in 2022 despite Covid’s Omicron variant and expected U.S. interest rate hikes. Those long the market used that as further leverage in their bid to get crude to their first target of $90 a barrel and eventually beyond $100.

The West Texas Intermediate benchmark for U.S. crude settled  up $1.61, or 1.9%, at $85.43 per barrel for its highest close since October 2014. WTI is up about 13% since the start of the year.

London-traded Brent, the global benchmark for oil, settled up $1.03, or 1.2%, at $87.51 per barrel, after a seven-year high at $88.12. Like WTI, Brent is also around 13% for 2022.

Crude prices initially lost 20% of their value shortly after the Omicron variant was discovered in November. They ran up again as underinvestment and outages prevented some producers within OPEC to pump at their allowed capacities under an agreement between the group, Russia and allies, known as OPEC+, to add 400,000 barrels per day each month.

"If current geopolitical tensions continue and OPEC+ members can’t deliver on their 400,000 barrel per day increase, macros coupled with the strong technical outlook could see prices push toward the $100 mark which is where the next (meaningful) technical resistance level lies," Ash Glover at CMC Markets was quoted saying by Reuters.

Even so, some of this year’s rally in oil seems built on hype more than fact. The so-called tighter market for oil that has underpinned the rally conflicts with the 21-month high in U.S. gasoline stockpiles, reached after consumption cratered when the holiday season between late November and December ended. 

That makes the weekly inventory update from the U.S. Energy Information Administration, due on Thursday, the last piece of the demand jigsaw for oil. After two straight weeks of huge gasoline builds, the EIA could report a substantial draw that could further aid longs in the market. 

But even if the EIA issues another negative dataset, the upward momentum in oil might not let up as Wall Street banks from Goldman Sachs (NYSE:GS) to Bank of America (NYSE:BAC) cheer hoarsely from the sidelines for $90-and-above crude.

“It’s a bull’s dream, what’s happening in crude oil now,” said John Kilduff, partner at New York-based energy hedge fund Again Capital. “The narrative we’re hearing about tight OPEC production is old news. The EIA gasoline number is the real news, but that has been ignored for two straight weeks now.”

Oil Pushes Toward $90; U.S. Inventories Last Piece in Demand Jigsaw 
 

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Comments (10)
Louis Lipps
Louis Lipps Jan 18, 2022 8:04PM ET
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What's the bear case for oil let's say over the next 6-12 months honestly?  I'm having a hard time coming up with one.  I'm sure they're out there.  OPEC+ underperforming every month and it seems like it's a we can't pump more not a we won't pump more.  DUCs have fallen off a cliff in the US and I'm not sure US E&P bails out this administration until oil goes parabolic.  I really think it may be personal this time.  If the last guy was in power we aren't pushing $85 I can assure you of that.  So what's the bear case?  Another variant?  I'm not buying that one.  Except gasoline now, all inventory levels are back to the last time oil was $100+.  Even jet fuel inventories aren't high.  Usually when literally everyone is either bearish or bullish the opposite happens though.  Almost always.
Louis Lipps
Louis Lipps Jan 18, 2022 7:51PM ET
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I don't even want $90 oil.  Give me $80 Brent with a $3.50 spread to WTI for the next 3 years straight and I'm a happy guy.  Wishful thinking though.  If oil is anything it sure is volatile both ways.
Ronald Warren
Ronald Warren Jan 18, 2022 7:31PM ET
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When gas hits $6 a gallon I won't be able to buy the fuel to fill my $26 gas can that used to cost $5. This transitory inflation thing is getting out of hand. My boat had a 50 gallon tank. It's insane to think that next summer I'll be spending $1,000 a month just on recreational fuel!
Shane Weddle
Shane Weddle Jan 18, 2022 7:31PM ET
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Yes, boat ownership truely is insane. I’ve been told the two beat daya of ones life is the day they buy and sell their boat.
Barani Krishnan
Barani Krishnan Jan 18, 2022 7:31PM ET
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Shane Weddle  How are you mate? Sorry to have about the boat Ron (and if you have one too, Shane). I think we can all safely assume that the Fed sat too long at the wheel on this. I guess it's the curse of Greenspan and his "put" (don't hurt the market, or more importantly don't be blamed for hurting the market with your rate hikes). Somehow, the Fed has just not been able to get past that mentality. Not really sure Powell is ready to be the next Volcker.
Chuck No
Chuck No Jan 18, 2022 6:48PM ET
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This author has been bearish since omicron and SPR release. I hope he quits writing about oil because he is very emotional, and very very wrong. Phil gets it, this guy does NOT.
Barani Krishnan
Barani Krishnan Jan 18, 2022 6:48PM ET
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I'd urge you to get a reality check on the product numbers reported by the EIA over the past two weeks before talking about my so-called bias. Had you read the story more closely, you'd have noticed that I even cited the possibility of a gasoline draw in Thursday's data. That said, but I not going to sit back and applaud at a market that jumped 15% this year on little more than thin air. Who's saying that? Adam Button of FX Live, another oil bull. I don't have positions in any commodities or securities, so that enables me to comment without any agenda. Louis Lipps below knows well about me. Read what he says about the article. Louis and I have had serious clashes on viewpoints before, to come away respecting each other. Louis knows oil has run up too, too fast in just 2 weeks. He's an energy bull who can admit something wrong when he sees it. You should as well. Thanks.
Louis Lipps
Louis Lipps Jan 18, 2022 6:48PM ET
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I'm pretty bullish oil and even I'm surprised how well it's doing.  Seasonally, this is pretty slow time of year until mid February.  Then it usually goes higher until May or June.  To be fair to Barani, just about every little thing that could be bullish is falling into place for longs right now.  I mean we just had another pipeline explosion today for god's sake.  Bulls have had a long long five years so I'll take anything I can get lol.
Shane Weddle
Shane Weddle Jan 18, 2022 6:48PM ET
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Barani Krishnan as we approach 90+ there are certainly more reasons for a drop in oil prices than a continued upswing. Im a long in E&P firms but i agree with you. Massive inventory builds, if continued, certainly portend a drop.
Barani Krishnan
Barani Krishnan Jan 18, 2022 6:48PM ET
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Shane Weddle  A lot will depend on Thursday's EIA. If it's bullish, the done deal. If not, I guess it will only slow the locomotive for another week ... and another  ... till the longs get to hear what they want
Chris Cash
ChrisCash Jan 18, 2022 6:34PM ET
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If Putin decides to visit Ukraine watch how high!
vince smith
vince smith Jan 18, 2022 6:30PM ET
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Its not high enough better cancel another pipeline.
Louis Lipps
Louis Lipps Jan 18, 2022 6:29PM ET
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Pretty fair article overall.  Spare capacity is going to be the name of the game going forward I think.  Or lack thereof I should say.  Omicron gonna ****through India and Japan next so if that doesn't slow oil down it could be a long summer for gas prices.  Eh, who am I kidding.  Even if a slowdown in India/Japan does come to fruition by Summer driving season gas prices are going to be ugly.  Come Easter covid is gone imo.  Really gone this time so it will be pent up demand like we've never seen before.  Long refiners.
Barani Krishnan
Barani Krishnan Jan 18, 2022 6:29PM ET
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Hey mate, seems like it's off to the 90s and beyond race. If the EIA reports good product numbers this week, it might be a done deal even before the ink dries on that (Wednesday's API would lay the ground). How are you, otherwise?
Louis Lipps
Louis Lipps Jan 18, 2022 6:29PM ET
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Barani Krishnan  lol I figured I'd lose that bet I was talking about a couple weeks ago (bottle of Dom if Brent hits $100) but I didn't think the bet might be over by Feb.  I think possibly one more thing that's really adding to the runup is just how fast DUCs are being depleted.  I read in permian they are down to 2017 levels which is pretty insane.  Someone posted the chart on twitter.  I'm in deep with refiners and midstream.  Refiners on fire still.  LPI on US E&P I own and surprisingly it's doing nothing.  Figured that one would be $100 by now but awful hedging awful management will do that.  Don't let these guys get you down.
Barani Krishnan
Barani Krishnan Jan 18, 2022 6:29PM ET
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Louis Lipps  Ha ha ... It's all in a day work for me (those biting comments). I can understand when one is bullish on something but must you ride with your blinkers on? But that DUC number shocked me too, mate. Serious business that. We should be cranking out more.
Sandhu Sandhu
Sandhu Sandhu Jan 18, 2022 4:01PM ET
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Nice
Елена Бобу
Елена Бобу Jan 18, 2022 3:54PM ET
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hello
Ahmed Aar
Ahmed Aar Jan 18, 2022 3:49PM ET
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ok send me
 
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