Oil bullish as tight supplies becomes market’s main focus

The black liquid is bullish towards the start of the London trading session on Thursday, with both major benchmarks up by over 1%, but remained in a narrow range after supplies from Libya shook markets earlier in the week.

The global benchmark, the Brent oil futures is bullish by 1.39%, currently trading $108.28 a barrel, while the United States benchmark, the West Texas Intermediate (WTI) CRUDE futures is also bullish by 1.34%, currently trading $103.59 a barrel, as of the time of this writing.

Many analysts expect that the oil markets are more likely to become even more volatile soon, with the European Union still weighing a ban on Russian oil for its invasion of Ukraine on Feb. 24. Asides from this, situations in China and Libya are also weighing in on prices.

What you should know

• European Union countries are currently evaluating methods to offset a potential ban on Russian oil, but no decision has been made yet on a sixth package of sanctions eight weeks after the war in Ukraine started.
• Asides potential sanctions from the EU, another factor weighing on price is the situation in Libya, who is a member of the Organization of Petroleum Exporting Countries and its allies (OPEC+) cartel.
• Libya on Wednesday said that it was losing more than 550,000 barrels per day of oil output thanks to blockades at major fields and export terminals.
• Investors also continue to monitor fuel demand in China, as the country slowly eases strict COVID-19 curbs. However, the oil market remains tight as the OPEC+ continues its struggle to meet its production targets.
• Commonwealth Bank commodities analyst Tobin Gorey told Reuters that, “Oil, and energy markets generally, have plenty of big issues in a state of flux to stay quiet for long.”
• SPI Asset Management managing director Stephen Innes said in a note that, “There is not much incremental news overnight, with a trajectory from here really hinging on whether other nations join the UK/U.S. in banning Russian oil imports.”

The U.S. Energy Information Administration (EIA) released data on oil supply on Wednesday which revealed a draw of 8.020 million barrels for the week ended Apr. 15. This draw was against a forecast of a 2.471-million-barrel build expected during the week in question and also negated the 9.382-million-barrel build that was reported during the previous week. Crude oil supply data from the American Petroleum Institute released the day before, showed a draw of 4.496 million barrels. The drawdown seen last week was the biggest drawdown in holdings since January 2021.

So far, Oil has rallied by more than a third this year, hitting the highest since 2008 after Russia’s invasion of its smaller neighbour sent shockwaves through the global energy market. The conflict has boosted inflation and spurred a rerouting of crude flows.