Oil prices hit 7-year highs as tight supply bites

Oil prices hit 7-year highs as tight supply bites
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Oil prices on Tuesday climbed to their highest since 2014 as possible supply disruption after attacks in the Mideast Gulf added to an already tight supply outlook.

Brent crude futures rose 77 cents, or 0.9 percent, to $87.25 a barrel at 11:05 a.m. EST (1605 GMT). US West Texas Intermediate (WTI) crude futures rose $1.25, or 1.5 percent, to $85.07 a barrel. Trade on Monday was subdued because of a US public holiday.

During the session, both benchmarks touched their highest since October 2014 with Brent at $88.13 and WTI at $85.74.

Supply concerns mounted this week after Yemen's Houthi group attacked the United Arab Emirates, escalating hostilities between the Iran-aligned group and a Saudi Arabian-led coalition. 

After launching drone and missile strikes that set off explosions in fuel trucks and killed three people, the Houthi movement warned it could target more facilities, while the UAE said it reserved the right to "respond to these terrorist attacks."

"The damage to the UAE oil facilities in Abu Dhabi is not significant in itself, but it raises the question of even more supply disruptions in the region in 2022," said Rystad Energy's senior oil markets analyst Louise Dickson.

"The attack raises the geopolitical risk in the region and may signal the Iran-US nuclear deal is off the table for the foreseeable future, meaning Iranian oil barrels are off the market, boosting demand for similar grade crude originating elsewhere," Dickson added.

UAE oil company ADNOC said it had activated business continuity plans to ensure uninterrupted supply of products to its local and international customers after an incident at its Mussafah fuel depot. 

Also adding to geopolitical price premiums are rising tensions between Ukraine and OPEC+ member Russia. 

In addition, some producers within the Organization of the Petroleum Exporting Countries (OPEC) are struggling to pump at their allowed capacities under an agreement with Russia and allies to add 400,000 barrels per day each month.

OPEC on Tuesday stuck to its forecast for robust growth in world oil demand in 2022 despite the Omicron coronavirus variant and expected interest rate hikes, predicting the oil market would remain well supported through the year. 

Goldman Sachs analysts said they expect oil inventories in OECD countries to fall to their lowest since 2000 by the summer, with Brent oil prices rising to $100 later this year.