Brent oil extended gains to the highest level in seven years as geopolitical tensions stirred in the Middle East and concerns about the demand impact of the omicron virus variant eased.
Yemen’s Houthi fighters claimed to have launched a drone strike on the United Arab Emirates — the third biggest OPEC producer — that caused an explosion and fire on the outskirts of the capital Abu Dhabi. West Texas Intermediate oil also briefly rose above $85 a barrel, the first time since October.
Adding to bullish sentiment is further strength in Asia’s physical crude market and shrinking global oil inventories. Goldman Sachs Group Inc. raised its Brent forecasts through 2022 and 2023, predicting $100 oil in the third quarter.
Crude has made a red-hot start to the year with the market tightening on robust demand and outages at producers including Libya. Segments across the oil complex are showing strength, from diesel to jet fuel, which is soaring in Europe as air travel withstands the omicron impact. OPEC is set to release its monthly report later Tuesday, providing a snapshot of the market.
“Sentiment in the market remains constructive, and the attack on the UAE has offered only a further boost to prices,” said Warren Patterson, the head of commodities strategy at ING Groep NV. “Supply disruptions coupled with firm demand has meant that the oil market is tighter than expected.”
Brent for March settlement was 0.9% higher at $87.22 a barrel on the ICE Futures Europe exchange at 12:01 p.m. Singapore time, the highest level since October 2014.
The prompt timespread was 75 cents a barrel in backwardation, compared with 64 cents a week earlier.
West Texas Intermediate for February delivery gained 1.3% from Friday’s close to $84.89 on the New York Mercantile Exchange after climbing as high as $85.19 earlier.
There was no settlement Monday due to the Martin Luther King Jr. Day holiday in the U.S. and transactions will be booked Tuesday.
One of the biggest attacks to date on UAE soil ignited a fire at Abu Dhabi’s main international airport on Monday and set fuel tanker trucks ablaze in a nearby industrial area. It took place days after the Iranian-backed Houthi fighters warned Abu Dhabi against intensifying its air campaign against them.
Spot differentials for Russian Sokol oil cargoes scheduled to be shipped in March rose by at least 40 cents a barrel from the previous trade, while the premium commanded by ESPO crude — a favorite grade among Chinese processors — surged to the highest since November, according to traders.