Oil highest since 2014 as Turkey outage adds to tight supply

Oil prices rose for a fourth day on Wednesday after a fire on a pipeline from Iraq to Turkey briefly stopped flows, increasing concerns about an already tight short term supply outlook.

Brent crude futures rose 48 cents, or 0.6%, to $87.99 a barrel at 1245 GMT, adding to a 1.2% jump in the previous session. The benchmark contract touched $89.05, its highest since Oct. 13, 2014. U.S. West Texas Intermediate (WTI) crude futures climbed 66 cents, or 0.8%, to $86.09 a barrel. WTI earlier jumped to $87.08, its highest since Oct. 9, 2014.

The explosion that set off the fire on the pipeline in the southeastern Turkish province of Kahramanmaras was caused by a falling power pylon, not an attack, a senior security source said.

The pipeline carries crude out of Iraq, the second-largest producer in the Organisation of the Petroleum Exporting Countries (OPEC), to the Turkish port of Ceyhan for export.

Analysts are forecasting tight oil supply in 2022, driven in part by demand holding up despite the spread of the Omicron coronavirus variant, with some predicting $100 a barrel.

Security concerns involving Russia, the world’s second-largest oil producer, and the UAE, OPEC’s third-largest producer, are adding to supply fears.

The International Energy Agency said on Wednesday that the oil market was due to flip into surplus in the first quarter of this year.

However, the agency warned commercial oil and fuel stocks in OECD countries were at their lowest levels in seven years and dents in supply could render the oil market in 2022 volatile.

Meanwhile, OPEC, Russia and other producers known as OPEC+, are already having difficulty hitting their monthly output increase target of 400,000 barrels per day.

Europe’s stock markets rose on Wednesday, with easing Omicron virus concerns eclipsing fresh fears of monetary policy tightening in both Britain and the eurozone as the world battles rocketing inflation, dealers said.

World oil prices zoomed to more seven-year peaks on renewed unrest in the crude-rich Middle East, and on expectations of resurgent post-pandemic demand.

London stocks won 0.3 per cent around midday as official data showed UK inflation hit 5.4 per cent in December.

That sparked speculation of another Bank of England interest rate hike in February and briefly pushed the pound to a 22-month euro peak.

Paris gained 0.7 per cent and Frankfurt added 0.4 percent in early afternoon eurozone deals.

Yields for 10-year German bonds rose above zero percent for the first time since May 2019, as surging inflation also prompted fears of monetary tightening in the eurozone.

Despite the prospect of more interest rate hikes, there remains a broad belief that the global recovery is still on track as economies reopen and fears over the less-severe Omicron coronavirus variant recede.

“We have to consider that markets have been extremely worried about the potential for further lockdowns/restrictions resulting from the recent Omicron variant,” XTB analyst Walid Koudmani said.

“Since that has proven to be a less significant concern than previously expected, markets are now slightly more optimistic as many economies are expected to extend the post-pandemic recovery.”

In contrast, Asian equity markets were hit by growing fears about the US Federal Reserve’s plans to fight surging inflation by ramping up interest rates, following a hefty sell-off on Wall Street. A rise in prices since early 2021 has forced central banks around the world to start winding back the colossal financial support put in place at the start of the pandemic, with many warning that failure to act could see them run out of control.

The main focus is now on the Fed - the central bank of the world’s biggest economy - which has so far refrained from lifting rates to bring US inflation down from four-decade highs.

Officials are currently reining in their massive bond-buying programme and aim to hike borrowing costs in March.

Some commentators predict a 50 basis-point rise - which would be the first that big since 2000 - having initially estimated 25 points.

Expectations for a quick run-up in rates has sent Treasury yields rocketing and caused near-panic, with all three main indexes on Wall Street deep in the red so far this year, having hit multiple records in 2021.

In commodities, oil extended gains on news of an explosion at a key pipeline running from Iraq to Turkey that transports more than 450,000 barrels a day according to Bloomberg News.

Upbeat results from a host of companies nudged US stock index futures higher on Wednesday, partially righting a wobbly start to the fourth-quarter reporting season, while Big Tech stocks also made a comeback.

Quarterly reports from Dow components including UnitedHealth Group Inc and Procter & Gamble Co supported sentiment in premarket trade, while Bank of America Corp and Morgan Stanley wrapped up earnings from big lenders on a positive note.

“stocks were getting hit last quarter even though they beat estimates, which tells me that their prices were inflated,” said Joe Saluzzi, co-manager of trading at Themis Trading in New Jersey. “Now that we’ve seen a bit of a sell off, when a company reports better-than-expected earnings, they should get a price rise as opposed to last quarter.”

UnitedHealth rose 0.6% after the health insurer beat market estimates for quarterly profit on strong demand in its health insurance business.

Procter & Gamble gained 1.2% as it raised its annual sales forecast, benefiting from higher prices and resurgent demand for cleaning products due to a spike in COVID-19 infections.