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Brent skyrockets above $88 and may continue to grow

On Tuesday, oil prices exceeded $88 per barrel for the first time since October 2014. Investors’ concerns about disruptions in the oil supply chain due to the situation in the Middle East triggered the growth of oil prices. Brent crude oil futures rose to $87.5 per barrel, WTI climbed to $84.85 per barrel. Earlier, Brent exceeded $88 and WTI jumped above $85 per barrel.

The Iranian-backed Ansar Allah (Houthis) insurgency drones in Yemen struck the United Arab Emirates, OPEC’s third-largest oil producer. They exploded three oil tanks in Abu Dhabi and blazed new constructions at Abu Dhabi airport. However, the Hussein militants warned that other facilities in the Emirates could also come under attack. The UAE authorities said they would respond to the attack. As a result, the ensuing coalition airstrikes on the Yemeni capital were the deadliest since 2019.

The armed confrontation between government forces and the Houthis has been going on in Yemen since 2014. Since 2015, the Arab coalition led by Saudi Arabia and the UAE has been fighting on the side of the government forces. Although the UAE authorities had previously announced that they would no longer take part in military operations in Yemen, they have not withdrawn their troops, leaving them at military bases in Yemeni ports. Over the past few weeks, the UAE has again been involved in fighting on the side of the government against the Houthis, bringing parts of the southeastern province of Shebwa back under government control.

This new geopolitical tension risks forming an even greater deficit of oil due to a shortage of supply. Since demand for oil is extremely high at the moment, the growing shortage is pushing oil prices to their highest levels.

The rally is likely to continue. Analysts assure that oil supply is unlikely to meet demand in the near future. Indeed, some OPEC countries are still unable to produce the volume of crude set by the alliance, as they do not have enough investment to do so.

Goldman Sachs Bank experts are confident that the cost of Brent oil may rise to $105 per barrel in 2023. Oil reserves are expected to decline in Q1 this year. However, it will not happen at such a fast pace. The experts of the bank forecast that the surplus of oil in Q2 may be less than the seasonal one at the level of 0.4 million barrels per day. This kind of equilibrium between demand and supply requires a long-term increase in price to $90 per barrel, which raises the price forecast for a barrel of Brent by Goldman Sachs to $96 this year and to $105 next year.

At the same time, the Omicron strain is expected to reduce global demand for petroleum products outside of China by 0.7 million barrels per day in January and February.

Today, the oil market is waiting for the release of the monthly report from OPEC with market forecasts and last week’s oil inventories data from the American Petroleum Institute (API).

The material has been provided by InstaForex Company – www.instaforex.com

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