Oil prices increased on Monday as investors bet that a global supply shortage will persist, despite major producers' supply cuts being partially offset by a rise in Libyan production. The global benchmark Brent crude futures closed up 42 cents, or 0.5%, at $86.48 per barrel. Earlier in the session, the contract reached its highest level since October 3, 2018, at $86.71. U.S. West Texas Intermediate (WTI) crude futures rose 53 cents, or 0.6%, to close at $84.35 per barrel after touching its highest price since November 10 at $84.78 per barrel. Trading volume was low due to a public holiday in the United States.
The increase in prices today follows last week's gains, where Brent crude rose more than five percent, and West Texas Intermediate increased over six percent. Traders noted that strong demand for oil, driven by supply shortages and indications that the Omicron variant has not impacted demand as previously feared, pushed certain crude prices to their highest levels in several years, suggesting that the rise in Brent prices may continue for an extended period.
The OPEC+ group, which includes the Organization of the Petroleum Exporting Countries (OPEC) and allies from other producing nations, is gradually easing the production cuts implemented when demand collapsed in 2020. However, many smaller producers are unable to increase supply, and others remain cautious about pumping more due to potential setbacks from the COVID-19 pandemic.
On the other hand, Libya's total oil production has returned to 1.2 million barrels per day, according to the National Oil Corporation of Libya. Libyan production was around 900,000 barrels per day last week due to a blockade of oil fields in the western part of the country. U.S. crude inventories fell more than expected last week to their lowest levels since October 2018; however, gasoline stocks rose amid weak demand, according to data from the U.S. Energy Information Administration.
Sources told Reuters that China intends to draw from its oil reserves ahead of the Lunar New Year holiday, starting January 31 and continuing until February 6, as part of a coordinated plan with the United States and other major consumers to curb rising global prices.
