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Futures Movers: Oil prices deepen rally above $90 a barrel toward fresh 7-year high

U.S. and global benchmarks for crude-oil futures marched above $90 a barrel on Friday, as a harsh winter storm raged in the U.S., piling onto myriad supply worries.

“The latest upswing was triggered by a cold snap in Texas, which is fueling concerns about production outages in the Permian Basin, the largest U.S. shale play. A year ago, a period of extreme cold weather had caused massive disruptions to oil production there,” said Carsten Fritsch, commodity analyst at Commerzbank, in a note to clients.

About 350,000 homes and businesses in states such as Tennessee, Arkansas and Texas were without power in the U.S. on Friday, due to a winter storm that brought freezing rain and snow. More heavy precipitation and ice was expected to hit the eastern portion of the country Friday.

Texas Republican Gov. Greg Abbott said the state was holding up, with about 70,000 outages by Thursday morning, compared with a crippling storm last year that left 4 million without power.

West Texas Intermediate crude for March delivery  CL00, +2.24% CL.1, +2.24% CLH22, +2.24%  climbed by $2.42, or 2.7%, to $92.69 a barrel on the New York Mercantile Exchange. A settlement around this level would be the highest for a front-month contract since late September 2014, FactSet data show. For the week, prices traded roughly 6.8% higher.

April Brent crude  BRN00, +2.05% BRNJ22, +2.05%,  the global benchmark, gained $2.21, or 2.4%, to $93.32 a barrel on the ICE Futures Exchange. That Friday level, if it holds, would mark the highest settlement since early October 2014. Prices were poised for a weekly rise of 5.4%.

Fritsch said Commerzbank is lifting its Brent forecast for this year to $90 per barrel in the current quarter from $80. “This is due to the steep rise in the risk premium on account of the Russia-Ukraine conflict, which is only likely to diminish gradually. For this reason, we expect the oil price to be still elevated in the second quarter at $85 (previous forecast: $75),” he said, in a note to clients.

Stronger-than-expected demand is also a key reason that prices are forecast to regain its pre-pandemic level by midyear at the latest.

“What is more, OPEC+ has been unable for months to fully implement the agreed production hikes,” he said.

Read: Why OPEC+ can’t hit its oil production targets—and what it could do about it

The Organization of the Petroleum Exporting Countries and its allies on Wednesday stuck with an initiative to boost production by another 400,000 barrels a day in March.

“The market had been relying on OPEC+ to gradually raise volumes, but had overestimated their ability to actually do so,” Manish Raj, chief financial officer at Velandera Energy Partners, told MarketWatch.

OPEC member states have been unable to produce oil at their assigned quota levels — worsening the supply-demand deficit, he said.

Also see: Coal’s not dead, and won’t be for years to come

“As a result, the market has found itself stretched in all directions: multi-year low inventories among OECD countries, coupled with razor thin spare capacity anywhere –– and no signs of real investments in oil and gas projects,” said Raj. 

“Then you add geopolitical tensions to the mix, and you see why oil is headed to $100,” he said. Still, the path to $100 oil would likely require a “geopolitical triggering event.”  

““Now that spare capacity is so little, even the slightest tension can trigger spikes in oil prices.””

— Manish Raj, Velandera Energy Partners

“The only spare oil production capacity is now at the hands of the three usual suspects — Kuwait, Saudi Arabia and the United Arab Emirates, Raj said. “Now that spare capacity is so little, even the slightest tension can trigger spikes in oil prices.”

In other energy trading, March gasoline  RBH22, +1.16%  rose 1.7% to $2.689 a gallon — trading around 6% higher for the week, while March heating oil  HOH22, +0.90%  added 1.9% to $2.893 a gallon, eyeing a weekly rise of 6.7%.

March natural-gas futures NGH22, -1.60% fell 1% to $4.838 per million British thermal units, but still traded more than 4% higher for the week.

Meanwhile, the U.S. monthly jobs report was mostly supportive and upbeat in terms of the outlook for energy demand. The nation added a robust 467,000 jobs in January. Economists polled by Wall Street had forecast 150,000 news jobs.

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