(Bloomberg) — Oil pushed higher at the week’s open as investors weighed prospects for rising demand as the omicron virus wave fades in key economies.
Global benchmark Brent rose toward $89 a barrel after a run of five straight weekly gains, the best streak since October. President Joe Biden’s chief medical adviser, Anthony Fauci, expressed optimism at the weekend that the surge in the new variant will soon peak. That could underpin improved consumption as more workers return to offices and people travel more.
In the Middle East, the United Arab Emirates said it intercepted two ballistic missiles fired by Yemen’s Houthi fighters, with no loss of life from the action. Last week, the Iran-backed rebels launched drone strikes on the UAE that caused explosions and a deadly fire outside the capital, lifting oil prices.
Crude has enjoyed a robust start to the new year, with prices soaring to the highest since 2014 last week, as demand picked up, stockpiles fell, and top Wall Street banks including Goldman Sachs Group Inc. issued bullish oil forecasts. At the same time, investors are weighing the possibility that Russia may invade Ukraine, as well as the outlook for tighter U.S. monetary policy.
“Physical market demand is strong, as is optimism over Covid turning endemic,” said Vandana Hari, founder of Vanda Insights in Singapore. “Oil’s narrative remains bullish, pointing to continued strength in prices interrupted by mild pullbacks,” she said.
The emergence of the fast-spreading omicron variant late last year initially spurred concern that the pandemic may be entering a new phase that would once again imperil oil demand. But the variant delivered a lighter-than-expected blow to crude consumption, enabling prices to bounce back.
Crude markets are in backwardation, a bullish pattern marked by near-term prices trading above longer-dated ones. Brent’s prompt timespread — the gap between its two nearest contracts — is now at 84 cents a barrel in backwardation, more than double the level at the start of this month.
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As oil has rallied in 2022, traders have been raising bets on further gains. Money managers have increased their bullish Brent and WTI oil wagers to the highest level in ten weeks, according to weekly ICE Futures Europe and CFTC futures and options data on four contracts.
Among banks, Goldman Sachs, a long-time commodity bull, expects that crude will hit $100 by the third quarter, and Morgan Stanley sees the same figure and timeframe. Bank of America has said that Brent crude would rise to $120 a barrel in mid-2022, while Citigroup Inc. remains more cautious.
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