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.”