Oil is racing towards ninety dollars a barrel after extending gains in Asia Wednesday from the highest close since 2014 following an explosion at a key pipeline running from Iraq to Turkey.
Brent, the internationally traded benchmark crude is at $88.69 after the disruption to the Iraqi oil movement took out crucial supply from an already tight market.
Futures in New York rallied above $87 a barrel in early trading before paring some gains and is now trading at $86.68.
The fire has been brought under control but the cause of the blast remains unknown, pipeline operator Botas said.
The global oil market has tightened in recent weeks due to outages in OPEC+ producers including Libya, with buyers in Asia paying sharply higher premiums for spot cargoes.
Crude’s sizzling start to the year has prompted Goldman Sachs Group Inc. to boost its forecasts for global benchmark Brent, predicting $100 oil in the third quarter. Concerns about the impact of the omicron variant of the virus have eased, global stockpiles are shrinking and unrest in the Middle East is back on the radar after a drone attack on oil facilities in the United Arab Emirates.
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“It’s a perfect storm,” said Vandana Hari, the founder of Vanda Insights in Singapore. “A bunch of supply disruptions, lingering OPEC+ production shortfalls and heightened geopolitical tensions. Plus there are low inventory levels combined with robust demand.”
Oil’s rally, however, poses a challenge for consuming nations and central banks as they try to stave off inflation while supporting global growth. The White House plans to continue to monitor prices and hold discussions with OPEC+ countries as needed, a National Security Council spokeswoman said Tuesday.
The pipeline hit by the blast is an important route bringing oil from northern Iraq to Europe through Turkey’s Mediterranean port at Ceyhan, transporting more than 450,000 barrels a day last year. Botas said the conduit would reopen once the “necessary measures” had been taken.
OPEC expects global oil markets to remain “well supported” by robust demand, maintaining the confident outlook that has allowed the group to revive output, according to a monthly report from the cartel on Tuesday. Stockpiles are considerably below their five-year average, the group’s data show.
“Mobility and demand overall has held up relatively well,” Daniel Hynes, senior commodity strategist at Australia and New Zealand Banking Group Ltd., said in a Bloomberg Television interview. The “supply picture is looking decidedly tight and that’s going to keep those markets pretty well supported,” he added.
