As tight supplies bite, oil hit seven-year highs

Gazoppa, a Russian supplier of Gazprom, was unable to supply gas east of the Yamal-Europe pipeline on Tuesday for a 29th consecutive session.

VTB Capital stated in a note that “for now, European customers don’t want more gas from Gazprom. This is likely due to the high gas prices. They are instead covering their demand via gas stored in storage.”

VTB Capital reported that buyers drew 15.6 million cubic metres of European gas last month, the fourth largest drawdown in a decade.

On Tuesday, benchmark oil prices rose to their highest levels since 2014 as possible supply disruptions following attacks in the Mideast Gulf exacerbated an already tight supply outlook.

Brent crude futures rose 0.88 or 1% to $87.36 per barrel by 1154 GMT. U.S. West Texas Intermediate crude futures (WTI), however, jumped $1.23 or 1.5% to $85.05 per barrel. Monday’s trade was quiet due to the U.S. holiday.

In Tuesday’s session, both benchmarks reached their highest levels since Oct 2014.

After the attack by Yemen’s Houthi rebel group on the United Arab Emirates, supply concerns rose this week. This escalated hostilities between an Iran-aligned group as well as a Saudi-led coalition.

Three people were killed and three injured when drone and missile strikes were launched by the Houthi movement. The UAE stated that it was ready to respond to terrorist attacks and warned that it may launch more strikes.

ADNOC, a UAE oil company, stated that it had initiated business continuity plans to ensure uninterrupted product supply to local and international customers following an incident at Mussafah fuel depot.

Geopolitical price premiums can also be exacerbated by rising tensions between OPEC+ members Russia and Ukraine

Moreover, some producers in the Organization of the Petroleum Exporting Countries are having trouble pumping at their permitted capacities due to underinvestment or outages. This is despite an agreement with Russia to increase the daily production by 400,000 barrels each month.

Analysts at Goldman Sachs said that they expect oil inventories to drop to the lowest level since 2000 in OECD countries by the summer with Brent oil prices rising up to $100 later in this year.

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