(Bloomberg) — Oil rose to its highest level since October 2014 as the International Energy Agency said the market appeared to be tighter than previously thought, with demand resisting the omicron.
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New York futures closed 1.8% higher on Wednesday, with the IEA saying in a report that demand for oil is on track to return to pre-pandemic levels. The agency also said global inventories were shrinking rapidly as demand remained robust and the OPEC+ coalition worked to restart production. This is a further indication that production could be lower or consumption could be higher than market estimates, he said.
“The market has already priced in a tighter market in 2022, and the IEA and other agencies are just catching up with that,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management. Oil could further extend its rally as “the risks of events in a tight market can cause outsized bullish moves.”
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An explosion on Tuesday destroyed a key oil pipeline from Iraq to Turkey, sending futures above $87 a barrel.
Oil markets have tightened in recent weeks on stronger-than-expected demand and outages at OPEC+ producers, including Libya, with buyers in Asia paying significantly higher premiums for spot shipments.
Additionally, concerns over the impact of the omicron variant of Covid-19 have eased, global stocks are dwindling and unrest in the Middle East is back on the radar after a drone attack on oil facilities in the United Arab Emirates United. The torrid start to the year prompted Goldman Sachs Group Inc. to raise its forecast for global benchmark Brent, forecasting $100 of oil in the third quarter.
The oil rally, however, poses a challenge to consumer countries and central banks as they attempt to stave off inflation while sustaining global growth. The White House plans to continue to monitor prices and hold discussions with the Organization of the Petroleum Exporting Countries and its allies if necessary, a spokeswoman for the National Security Council said Tuesday.
See also: Key Oil Spread Jumps After Iraq Pipe Blast, Buoy Prices: Chart
The IEA said in its report that global oil inventories have fallen over the past 12 months. Stockpiles have fallen by more than a billion barrels since peaking in May 2020 and are well below pre-pandemic levels, according to the report.
“Mobility and demand overall has held up relatively well,” Daniel Hynes, senior commodities strategist at Australia and New Zealand Banking Group Ltd., said in an interview with Bloomberg Television. “The supply situation looks decidedly tight and that will keep these markets fairly well supported,” he added.
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