Oil is back on the boil. US futures closed above the $100 a barrel mark for the first time this week, homing in on the inflation-adjusted 1980 record of almost $103.
A series of supply problems have rattled the tight market, including a pipeline leak in Nigeria, where violence has already shut a fifth of the country’s oil facilities.
Short covering by bearish traders helped boost prices, while investors unnerved by turmoil in bond and equity markets have been piling into commodities of late, a trend buttressed by the weak dollar. Moreover, Opec has signalled that production will not be raised at its next meeting in March. Opec’s view that demand will soften has actually “stoked bullish expectations”, said Lex on FT.com, as investors are assuming Opec could therefore cut production quotas.
Consumption is expected to ease this year, according to both the International Energy Agency and the US Energy Department, which is also pencilling in a build-up in US oil inventories as American growth slows. Barclays Capital noted last week that the stock position in Europe has improved substantially.
With global growth slowing, oil seems unlikely to “skyrocket”, said David Cohen of Action Economics. But given investor interest in commodities, and hitherto robust demand in the emerging world, prices, as Michael Rose of Angus Jackson said, may “go higher before they go lower”.