Oil Leaps by 3% As Analysts Are Suddenly Gripped By Supply Tightness Fears

Meanwhile, Russian crude is piling up at sea: File Image/Pixabay

For a second straight session, the winter storms in Eastern U.S. eclipsed sky-high tensions between the U.S. and Iran in the minds of analysts, and reports that severe weather caused the loss of 2 million barrels per day (bpd) of output over the weekend led to a 3 percent surge in oil prices on Tuesday.

Brent settled up $1.98, or 3 percent, at $67.57 per barrel, and West Texas Intermediate settled up $1.76, or 2.9 percent, at $62.39 per barrel.

With short-term risks tilted to the upside on supply disruption fears, Kazakhstan was also on the radar for many analysts: sources told media that its Tengiz oilfield will likely restore less than half its normal production by February 7 as it recovers from a fire and power outage.

Meanwhile, a U.S. aircraft carrier and warships arrived in the Middle East, stoking fears that military action against the Iranian government may be imminent for its mass-murder of protesters; "That is keeping oil prices supported in the near-term outlook," said Fawad Razaqzada, market analyst at City Index.

Countering possible supply tightness was Venezuela, where U.S. officials are working to issue a general license that would lift some sanctions on that country's energy sector and redistribute flows of Venezuelan heavy crude less in the favour of China and more for the U.S.

Still, a nascent bullish sentiment in the oil market prevailed and gained added support from the Kremlin, which said the "territorial issue" remains unresolved with Ukraine, and there's "no hope of achieving a long-term settlement" to the war until Russia's demand for territory in Ukraine is accepted.

Richard Asplund, an analyst at Barchart, said, "The outlook for the Russia-Ukraine war to continue will keep restrictions on Russian crude in place and is bullish for oil prices."

In other oil news on Tuesday, vessel-tracking data compiled by Bloomberg showed that Russia shipped an average of 3.18 million bpd of crude in the four weeks to January 25, little changed from the prior week but down by about 680,000 bpd from the pre-Christmas peak and the lowest level since August.

Deliveries of Russian crude to India fell to about 1.2 million bpd in December, the lowest level in more than three years, and Bloomberg noted that as a result, Russian oil is piling up at sea, with about 140 million barrels of crude oil being held on seaborne vessels: roughly a 60 million barrel increase since late August.