OIL FUTURES: Crude reaches new 7-year highs as market eyes tightening supply outlooks

Crude futures pushed to fresh seven-year highs Jan. 31 amid ongoing Ukraine tensions and concerns that limited OPEC+ spare capacity would create tighter supply balances.

NYMEX March WTI settled $1.33 higher at $88.15/b and ICE March Brent climbed $1.18 to finish at $91.21/b.

OPEC and its allies are largely expected to affirm another 400,000 b/d hike in crude oil production quotas for March when they meet Feb. 2, however the inability of several members to hit their current targets means far the market will likely see a much smaller increase than this headline figure suggests next month.

"It seems to be a foregone conclusion that [OPEC+] will decide to further increase production by 400,000 b/d," Commerzbank analyst Carsten Fritsch said in a note. "That said, OPEC+ has been failing for months to actually implement the agreed production hikes in full."

OPEC+ spare capacity has been cited by analysts as a key supply concern for 2022, with information from the Joint Organizations Data Initiative showing Saudi crude inventories at their lowest since at least 2002, while member countries like Nigeria have been pumping consistently below quota in recent months.

"By the looks of it, [OPEC+] can't meet their current output quotas as it is. If I were to guess, I'd assume they will keep output unchanged," said one crude market participant.

NYMEX February RBOB climbed 1.20 cents to $2.5543/gal while February ULSD gave up 2.63 cents to settle at $2.7592/gal.

Investors have raised their long positions in ICE Brent and NYMEX crude in recent weeks, reflecting growing confidence in a continued recovery in global oil demand and a lack of supply from producers.

Speculative net long positions in ICE Brent crude rose for five of the last six weeks up to the week ended Jan. 18 from near one-year lows, most recent data from ICE showed.

Speculative net long positions in NYMEX crude, meanwhile, have risen for four of the last six weeks up to the week ended Jan. 25, data from the US Commodity Futures Trading Commission showed.

The front-month ICE Brent and NYMEX WTI contracts last settled higher on Oct. 8, 2014, and Oct. 7, 2014, respectively.

"January has been a great month for oil prices and $100 oil might not be too far away as expectations are high that supply will not come close to catching up with demand as OPEC+ will deliver gradual production increase targets that they will fall short of reaching," OANDA senior market analyst Ed Moya said in a note.

Against this backdrop, simmering tensions between Russia and Ukraine have further underscored supply risks, with the market pricing in potential western sanctions against Moscow that would likely adversely affect Russian energy flows to Europe.

US President Joe Biden said Jan. 31 that Russia would "face swift and severe consequences" if it "chooses to walk away from diplomacy and attack Ukraine."

Russia was the No. 3 oil supplier to the US in November after Canada and Mexico, US Energy Information Administration data showed Jan. 31.