Global oil markets are relatively stable today as falling U.S. equities and the prospect of an interest rate hike balance out supply concerns.
Oil markets are finding the balance between tight supply and U.S. financial market dynamics today, fresh off the back of seven-year highs and on track to hit steady monthly gains for January.
Despite global supply concerns emanating from Ukraine-Russia tensions, threats to infrastructure in the UAE and OPEC+ struggling to hit its targeted monthly output increase, oil markets remain stable thanks to sliding equities and the possibility of an interest rate hike by the U.S. Federal Reserve on Wednesday.
U.S. crude oil inventory levels are keeping prices in check, with Cushing reserves hitting their lowest seasonal level in 10 years.
Oil prices will remain bullish through the end of February, but bearish blips are expected throughout the year as investors cash out and move into the strengthening U.S. equities market, which should benefit from some momentum following tomorrow’s Fed meeting.
The chatter around $100 oil remains hypothetical, but such a bull scenario could materialize even on the backdrop of tighter monetary policy globally if the core producers from OPEC+ keep production below target levels and if Iranian crude remains off the market.
Further supply disruptions resulting from activities in Libya or the UAE could also create the bullish conditions required for oil prices to cross the triple-digit threshold.
A $100 price spike would eventually be corrected by marginal production, primarily by US shale producers and other production players in Canada, Brazil, Norway and Guyana.
The upside risk to prices could escalate due to further attacks on UAE oil infrastructure objects, Libya’s still unresolved election outcome, outages in Ecuador, unexpected offshore maintenance due to weather-related events, or a frigid air arriving in Texas for the second time this winter season and hampering production.
Downside risk to the current oil prices is mainly tied to oil demand consumption fallout from the Omicron variant or other future variants that would necessitate tighter restrictions and negatively impact refined products such as jet fuel, diesel and gasoline.
However, global concerns over Omicron appear to be waning with governments removing restrictions and lockdowns, which is positive news for refined products demand barring any new variant emergence.
