Oil prices rose early on Thursday, with Brent firming above $90 a barrel, as fears of a Russia-Ukraine conflict that could disrupt energy supply to Europe trumped a strengthening U.S. dollar after the hawkish Fed statement on Wednesday.
As of 10:00 a.m. EST on Thursday, WTI Crude was up 0.96% at $88.18 and Brent Crude traded above $90 per barrel, at $90.78, up by 0.91%.
On Wednesday, Brent broke above $90 for the first time since 2014 due to the simmering tension between Russia and the West over Ukraine and another decline in the U.S. inventories at Cushing, Oklahoma—the delivery point for WTI.
“The standoff between Moscow and NATO allies over Ukraine continues to fester, maintaining a fear premium in the oil complex over a potential disruption of Russian oil and gas supply to Europe,” Vanda Insights said early on Thursday.
Fears of a military action outweighed on Thursday the rising U.S. dollar, which typically leads to declining oil prices as crude becomes more expensive for holders of other currencies.
The dollar strengthened after the Fed signaled in its Federal Open Market Committee (FOMC) statement on Wednesday that a rate hike was coming in March, while Fed Chairman Jerome Powell said there were upside risks to inflation.
Yet, the bullish factors such as low Cushing inventories and a fear premium over the Russia-Ukraine crisis supported oil prices on Thursday morning.
“While the EIA reported a nationwide increase in crude oil stocks, Cushing saw another drop to the lowest level for this time of year in a decade,” Saxo Bank said in a market commentary on Thursday.
“The emerging tightness at this key delivery hub for WTI crude oil futures kept prompt spreads elevated and together with continued concerns over Ukraine, the post-FOMC correction has so far been relatively small,” the bank said.
By Tsvetana Paraskova for Oilprice.com
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However, I hasten to add that Brent crude was on its way to $90 a barrel and beyond even without the Ukraine crisis. The reason is that so many powerful bullish factors have joined hands for the first time since 2014 to support the global oil demand. Among these factors are a roaring economy, a tight market, a global underinvestment in oil and gas since 2019, a reduction of over 400 million barrels from the international oil inventories from a year ago, a lessening in global concerns about the Omicron variant and reports about a shrinking OPEC+ spare production capacity.
The global oil market is already tight and will get even tighter in coming years as a result of a surging demand and lagging supply. Therefore, it wouldn’t be surprising if we see $100 oil in the fourth quarter of 2022 or the first quarter of 2023.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London