Oil Up As Demand Continues To Grow - Along With Geopolitical Tension

Vitol Group predicts supply problems heading into summer: File Image/Pixabay

Winter temperatures supporting heating fuel demand in Europe along with growing consensus that omicron's impact was limited – and could spell the end of the pandemic – resulted in another round of gains for crude on Monday.

West Texas Intermediate was 0.6 percent higher at $84.30 per barrel when holiday trading halted, and Brent settled up 0.4 percent at $86.48 per barrel.

Oil has rallied over 10 percent so far this year, and Louise Dickson, senior oil markets analyst at Rystad Energy, said, "The positive spin on price has broken into the third week of January, and the drivers behind the optimism have continuously tightened so far in 2022.

"A mild omicron impact has increased oil demand expectations for the year, all while the supply picture gets tighter on lowered production, in particular from OPEC+ countries."

Even sanctions-plagued Iran is benefitting from the demand rush: Javad Owji, oil minister for the Islamic republic, disclosed that Iran's budget for the year to start March 21 has factored in daily oil sales of 1.2 million barrels.

Also, it was reported on Monday that Norway sold 1.38 trillion kroner ($156 billion) worth of goods abroad in 2021, a 77 percent increase that led to a full-year trade surplus of 531 billion kroner, also the highest ever, according to Statistics Norway.

The higher fossil fuel exports are reportedly contributing to Norway's central bank to move ahead with a string of planned interest rate hikes

Although Monday's gains were said to be capped by signs of slowing economic growth in China (a gross domestic product rise of 4 percent last quarter, the weakest since early 2020), that country's central bank took action by cutting its key interest rate for the first time in almost two years.

For its part, Vitol Group took the stance that omicron will not have much of an impact on demand, and this coupled with some of the world's biggest producers struggling to raise production would cause  supply problems during the summer months of this year – and oil prices could rise even further.

As for the near term, bullish sentiment is expected to be supported by geopolitical threats in the form of fears that Russia will attack Ukraine if diplomacy failed: the former Soviet Union has amassed 100,000 troops on that country's border.