DTN Oil

WASHINGTON (DTN) -- Oil futures nearest delivery on the New York Mercantile Exchange and Brent crude traded on the Intercontinental Exchange reversed higher in early morning trade Friday, with all petroleum contracts heading for their sixth consecutive weekly advance spurred by falling U.S. crude oil stockpiles and heightened geopolitical risk related to tensions along the Russian-Ukrainian border and the threat of another missile attack on Gulf oil infrastructure from Iranian backed Houthis militia in Yemen.

Near 7:30 a.m. ET, West Texas Intermediate futures for March delivery advanced $0.62 to $87.24 per barrel (bbl), and international crude benchmark Brent crude edged above $90 bbl -- the highest trade since July 2014. NYMEX RBOB February contract gained 2.64 cents to $2.5474 gallon and the front-month ULSD contract rallied 3.49 cents or 2.3% to $2.8294 gallon, supported by ongoing robust U.S. demand for middle distillates.

Total crude oil stockpiles held by industrialized countries declined for the third consecutive month in December, according to the International Energy Agency, which has pressed inventories to their lowest level in seven years. In the United States alone, inventories held in Cushing storage tanks -- the delivery point for WTI futures -- stand at their lowest since October 2018 and 30% below the five-year average. Globally, OPEC+ producers have struggled to raise shut-in crude production in line with their agreed monthly quota of 400,000 bpd, with several key members of the alliance, including Russia and Nigeria, are speculated to have hit their output ceiling. A structural supply deficit from OPEC+ producers, as well as laggard recovery of U.S. shale output means oil prices could go even higher.

Investors will look towards the next OPEC+ meeting on Feb. 2 for the group's decision on production and output levels for March. The alliance is expected to maintain its gradual unwinding of production cuts and proceed with its planned 400,000 barrel-per-day (bpd) output hike for the final month of the first quarter.

Amid tightening fundamentals, the oil market is particularly sensitive to the risk of supply disruption. Tensions between Russia, a major oil producer, and Ukraine, a major conduit for natural gas supplies to the European Union, have been partly responsible for driving the Brent contract above $90 bbl.

Russia's Foreign Minister Sergei Lavrov said the U.S. and North Atlantic Treaty Organization's response to Moscow's security demands in Europe on Wednesday is "a start of serious conversation on secondary questions" but doesn't address the main concern of NATO's expansion to the East. Details of the response have not been made public, but the first leaks in Russian news wires suggest NATO offered Moscow access to missile installations located in Poland to ensure their defensive purpose.

Limiting the upside for the oil complex is a rallying U.S. dollar index that gained 0.18% against a basket of foreign currencies in early trading to trade near 97.420. The greenback rallied Thursday on better-than-expected reading on U.S. gross domestic product that surged 6.9% in the final three months of 2021 compared with an expected 5.7% annual growth rate. The reading marked the fastest expansion of U.S. GDP since the third quarter 2020 when the economy roared back from pandemic-induced lockdown measures.

The roaring growth seen in the final months of 2021 is unlikely to repeat itself this year, according to economists, as U.S. Federal Reserve moves to a period of monetary tightening to rein in inflation while Americans are spending their savings. At a news conference following the conclusion of the Federal Open Market Committee's two-day policy meeting on Wednesday, Fed Chairman Jerome Powell said the central bank doesn't exclude the scenario of raising interest rates at every FOMC meeting this year. There are seven more FOMC meetings in 2022.

Liubov Georges can be reached at liubov.georges@dtn.com