On Friday, oil prices recorded their back-to-back sixth weekly gain and rose rapidly to more than a seven-year peak after the geopolitical conflicts raised concerns over the supply crunch. The contracts also noted their longest gains run since October, on a weekly basis.
Brent futures rose 69 cents to settle at $90.03 a barrel, after hitting $91.70, the highest level since October 2014. US crude closed 21 cents higher at $86.82 per barrel, after hitting a seven-year peak of $88.84 during the session.
Tight oil supplies pushed the six-month market structure for Brent into steep backwardation of $6.92 a barrel, the widest since 2013. Backwardation exists when contracts for near-term delivery of oil are priced higher than those for later months, encouraging traders to release oil from storage to sell it promptly.
Prices drew support from concerns over a possible military conflict in Ukraine that could disrupt energy markets, especially natural gas supply to Europe.
“So far there have been no supply disruptions in Eastern Europe, so I guess the risk premium related to those tensions is not so high,” UBS analyst Giovanni Staunovo said. He added: “Some investors still prefer to hold their exposure.”
US crude futures did briefly turn negative earlier in the session.
Relatively softer US rhetoric on Russia may have led to “some of the air being let out of the tires on this crude rally”, said Matt Smith, director of commodity research at ClipperData.
“But the bigger picture here is that with all the geopolitical uncertainty and the supply side concerns, prices are continuing to just get swept along,” he said.
On the supply side, Marshall Steeves, energy markets analyst at IHS Markit, said that the US has been struggling with keeping up the production as the rig count has been rising, resulting in a higher output this year. Whereas, on the demand side, analysts and oil company officials reported that China’s crude imports could bounce back as much as 7 percent this year.
