Oil price hits its seven (7) year peak on political risks and supply shortage
Oil prices rose to a more than seven-year peak on Friday and recorded their sixth straight weekly gain as geopolitical turmoil exacerbated concerns over tight energy supply. On a weekly basis, the benchmark contracts notched their longest run of gains since October. Brent futures rose 69 cents to settle at $90.03 a barrel, after hitting $91.70, the highest level since October 2014. U.S. 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. Major producers in the Organization of the Petroleum Exporting Countries and allies led by Russia, collectively known as OPEC+, have struggled to raise their production levels.
The market also reacted to attacks on the United Arab Emirates. Meanwhile prices drew support from concerns over a possible military conflict in Ukraine that could disrupt energy markets, especially natural gas supply to Europe.
Asian LNG price rises on colder weather and geopolitical tensions
Asian spot liquefied natural gas rose last week as cold weather in Japan and parts of northern China lifted demand and amid concerns over European supply disruptions from Russia. The average LNG price for March delivery into north-east Asia rose to
$27.00 per metric million British thermal units, up $4.00 or 17.4% from the previous week, industry sources said. Colder weather in Japan has caused a rapid decline in LNG stockpiles and prompted some utilities to buy on the spot market to secure additional supplies, traders said. Asian buyers are also trying to attract U.S. shipments back to Asia from Europe ahead of an expected pick-up in demand. The steady flow of LNG tankers into Europe has helped ease supply concerns over reverse flows from Germany to Poland via the Yamal-Europe pipeline since Dec. 21. However, European supply concerns have been re-ignited after the U.S. government held talks with several international energy companies and Qatar on contingency plans for supplying natural gas to Europe if conflict between Russia and Ukraine disrupts Russian supplies. If pipeline supplies from Russia to Europe are reduced, European buyers would need to seek cargoes of LNG to compensate.