Brent crude jumped above $120 a barrel on Wednesday, and signs point to more gains ahead. Even some oil bears are turning more bullish as the supply-demand imbalance shows little signs of easing.
Brent crude, the international benchmark, was up 5.5%, to $121.84 a barrel. West Texas Intermediate, the U.S. benchmark, was up 4.9%, to $114.67.
The Energy Information Administration released data on Wednesday that showed U.S. oil inventories dropping by 2.5 million barrels in the prior week, confirming fears that there is less oil available in storage just as people start traveling more.
Citigroup, whose analysts have been bearish on oil and gas for months, upgraded its target prices on Wednesday. The bank raised its 2022 Brent crude price target to $91 from $71 and its target for liquefied natural gas imported into Asia to $22 per million BTUs from $12.
Citi remains bearish in the longer-term, with a Brent price target of $59 for next year. But its new price targets reflect that even bears expect higher oil prices to persist this year. Citi recommends investors buy shares in the BP Prudhoe Bay Royalty Trust (BPT) to take advantage of the oil and gas market.
There was also more news out of Russia indicating a further decline in exports available there. A pipeline on the coast of the Black Sea that ships 1.2 million barrels of oil a day could be out of commission for months for repairs, according to Russian Deputy Prime Minister Alexander Novak. The Federal Reserve Bank of Dallas said in a report on Tuesday that as many as three million barrels of Russian oil exports were at risk because of sanctions and the difficulty of financing shipments after Russia’s invasion of Ukraine. That’s 3% of global supply.
And companies appear to be expecting higher prices to stick around too. On Tuesday, Hess (HES) disclosed it had paid $325 million to remove call options priced at $100 WTI and $105 Brent that it had used to protect its oil and gas investments this year “in light of the recent high volatility and liquidity risk in the oil markets,” said CEO John Hess at a conference on Tuesday. It still has downside hedges at $60 and $65 but is “now positioned to benefit on the upside while remaining protected on the downside,” Hess said.