More Gains For Crude As Demand Skyrockets, $100 Oil Forecast Again

But one analyst warns that high prices could harm economic recovery: File Image/Pixabay

The latest sign of tightening crude inventories – oil held on tankers falling by over 20 percent last week – was one of several factors that caused prices on Monday to once again climb, with Brent settling above $91 per barrel and posting a 17 percent monthly gain.

Additionally, a damaged oil pipeline in Equador caused further supply worries, and snowstorms in eastern U.S. boosted demand for fuels.

West Texas Intermediate rose $1.33 to settle at $88.15 per barrel, while Brent for March settlement gained $1.18 to $91.21 per barrel (the more active April contract rose 74 cents to $89.26).

It was also reported on Monday that profits from converting oil to gasoline in the U.S. are at the highest level for this time of the year since 2013, while in Europe oil's premium to crude is at its highest on a seasonal basis in at least three years.

Paul Wallace, analyst at Bloomberg News, said that while geopolitical tensions and other factors play significant roles in oil's bullish performance, "The issue of dwindling spare capacity is really what's at play here, it's something that's really come to the front of traders' minds."

He added that if tensions between Russia and Ukraine were to ease it would certainly cause prices to abate, but whether it would be by $5 or $10 per barrel he could not say.

Monday also saw the increasingly familiar spectacle of various analysts predicting $100 oil in the near future, one being Stephen Schork, principal at The Schork Group: he pegged the chances at 30 percent.

But the predictions were not altogether upbeat: Mohammed Ali Yasin, chief strategy officer from Al Dhabi Capital, reminded Bloomberg television that oil in the three digits could slow global recovery.

As for the meeting this Wednesday of the Organization of the Petroleum Exporting Countries and allies led by Russia, it is widely expected that they will maintain their policy of raising their output by 400,000 barrels per day per month, and this caused Louise Dickson, senior oil markets analyst at Rystad Energy, to remark that the "month-to-month supply increases of 400,000 bpd are either too immaterial for the market to appreciate and more importantly, not being completely fulfilled by the group.

"The only short-term solution for balancing the supply-short oil market will therefore need to come from OPEC+, and steered by Saudi Arabia, the producer with the largest spare capacity."