Next Stop For Oil: $100 As Two Key Benchmarks Settle Above $90 Per Barrel

Fear, not logic, is driving trading, says one analyst: File Image/Pixabay

The familiar one-two punch of depleting stocks and insatiable demand caused oil on Thursday to surge yet again, in the case of the U.S. benchmark past the $90 threshold for the first time since 2014.

Brent settled up $1.64 at $91.11 per barrel and West Texas Intermediate soared $2.01 to end at $90.27 per barrel, following the 1 million barrel decline of U.S. stockpiles and the threat of cold weather impacting production in Texas.

According to Bloomberg, one large Permian driller had about 4,000 barrels per day (bpd) of production shut because of the weather, a situation replicated elsewhere in the vicinity and exacerbated by a lack of trucks to gather the crude.

Also influencing traders on Thursday was the U.S. warning that Russia was planning to use a staged attack as justification for invading Ukraine.

Bob Yawger, director of energy futures at Mizuho, pointed out that trading activity boiled down to one thing: "It's hysteria or a kind of fear: the last hour, the talk has started to drive [oil] higher."

Gary Cunningham, director of market research at Tradition Energy, added, “We have growing global demand and we’re not really ramping up supply to meet it.”

While failure to increase output has been attributed to many members of the Organization of the Petroleum Exporting Countries (OPEC), it also holds true for the U.S., which according to government data produced 11.5 million bpd in the most recent week, compared to the 2019 record of 12.3 million bpd.

With Omicron retreating dramatically peaking in many parts of the world, global demand is rebounding with a vengeance: traffic in London and New York reportedly returned to prepandemic levels on Monday, the first time since December that those cities exhibited that degree of congestion and a strong sign that commuting is rapidly returning to normal.

However, that didn’t prevent Ryan Lance, CEO of ConocoPhillips, from stating on Thursday that traders should be worried about the U.S. reacting too strongly and creating oversupply.

He said that output will now grow by as much as 900,000 bpd this year, more than a third higher than the Energy Information Administration’s forecast: “I’m absolutely concerned about; if you’re not worried about it, you should be.”

But Lance’s observation seems to be the distinctly minority view: Thursday also saw one analyst reiterate what now seems to be a fait accompli for oil in the near future: Ed Moya, senior market analyst at Oanda Corp, said, “The oil market is so tight that any shock to production is going to send prices soaring. OPEC+ production is on cruise control with their gradual increase strategy, which means oil seems like it’s going to make a run towards $100 oil pretty soon.”