Brent Crude Crosses $90/bbl for 1st Time in 7 Years

For the first time since the peak of 2014, the price of Brent Crude crossed the $90/bbl mark. Even the US-based WTI crude was trailing close behind at $88/bbl. In fact, in mid-day trades, the crude was trading at $90.73/bbl with strong positive price traction. There are a number of factors that are pushing prices higher but the primary factor is geopolitical risk.

The first big geopolitical risk is on the Middle East. The problem has got exacerbated ever since the Houthi rebels fired ballistic missiles at Abu Dhabi. The missiles were intercepted with zero damage but it opened the geopolitical risk cauldron. More importantly, it raises concerns over the passage through Straits of Hormuz which moves majority of the oil from the Middle East to other parts of Asia.

The other bigger risk is the worsening situation in the Russia-Ukraine border. The US is already talking about personal sanctions on Putin and charges are flying hard both ways. Russia is a tough player and they are not going to cave in to pressure. That makes the situation at the Russia Ukraine border worse. Markets are fearing that any worsening of the situation could lead to oil and gas supplies to Europe getting disrupted.

The oil supply has been fairly tight with supplies already being disrupted in Africa and the Middle East. This has kept the supply below the demand leading to firm prices. In addition, the tensions in the Middle East and Russia have only worsened fears that the supply of oil could face long term disruption if Russia was to attack Ukraine, which is not too far fetched to envisage at this point of time.

There is also the demand factor. The big bet in the market was that the demand for oil would taper due to the Omnicron variant, but that did not happen. The Omnicron variant did not result in extensive shutdowns as anticipated nor did it impact growth and demand significantly. Hence the demand for oil has been more or less static while the supply chains have come under pressure. That is pushing the oil prices higher on a regular basis.

A lot will depend on the OPEC Plus meet on 02-Feb, wherein they are expected to debate supply increases. However, in the last few weeks, OPEC has struggled to meet oil targets as it tries hard to restore original supply after the huge supply cuts during the pandemic. So, geopolitical situation in Russia, Ukraine, NATO region and the Middle East will rule the roost for the time being.

The only food thing here is that US stockpiles have been on an uptrend and that could normalize prices a bit. At least, India would be fervently hoping something like that happens.

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