Oil extends rally on supply tightness, Brent at more than 3-year high

TOKYO (REUTERS) – Oil prices rose on Monday (Jan 17), with Brent crude futures at their highest in more than three years, as investors bet supply will remain tight amid restrained output by major producers with global demand unperturbed by the Omicron Covid-19 variant.

Brent crude futures gained 42 cents, or 0.5 per cent, to US$86.48 a barrel by 0022 GMT. The contract touched its highest since Oct 3, 2018 – US$86.71 – earlier in the session.

US West Texas Intermediate crude was up 62 cents, or 0.7 per cent, at US$84.44 a barrel, after hitting US$84.78, the highest since Nov 10, last year, earlier in the session.

The gains followed a rally last week when Brent rose 5.4 per cent and WTI climbed 6.3 per cent.

Frantic oil buying, driven by supply outages and signs the Omicron variant will not be as disruptive as feared for fuel demand, has pushed some crude grades to multi-year highs, suggesting the rally in Brent futures could be sustained a while longer, traders said.

“The bullish sentiment is continuing as (producer group) Opec+ is not providing enough supply to meet strong global demand,” said Fujitomi Securities analyst Toshitaka Tazawa.

“If (investment) funds increase allocation weight for crude, prices could reach their highs of 2014,” he said.

The Organisation of the Petroleum Exporting Countries (Opec) and its allies – Opec+ – are gradually relaxing output cuts implemented when demand collapsed in 2020.

But many smaller producers cannot raise supply and others have been wary of pumping too much oil in case of renewed Covid-19 setbacks.

Worries of a Russian attack on neighbouring Ukraine that could disrupt energy supply also lent support to prices.

United States officials voiced fears on Friday that Russia was preparing to attack Ukraine if diplomacy failed. Russia, which has massed 100,000 troops on Ukraine’s border, released pictures of its forces on the move.

The US government has held talks with several international energy companies on contingency plans for supplying natural gas to Europe if conflict between Russia and Ukraine disrupts Russian supplies, two US officials and two industry sources told Reuters on Friday.