WTI dips below $87.00 level, though still well within recent ranges and not far from multi-year highs

• WTI recently dipped below $87.00 back towards session lows, but remains broadly well supported close to recent highs.
• Strategists cite geopolitics (Russia/Ukraine/Nato), OPEC+ supply concerns and robust/recovering demand as sources of oil market support.

Oil markets have seen a subdued start to the week, with front-month WTI futures spending most of Monday’s session thus far consolidating within an $87.00-$88.00 range, not far below last week’s multi-year highs at $88.82 per barrel. More recently, WTI has dipped under the $87.00 level and is trading in the red by about 50 cents and at session lows. However, WTI remains well within recent ranges and there is plenty of support in the form of recent bottoms in the low $86.00s.

Analysts/market commentators continue to cite uncertainty relating to future Russian oil supply in case the country takes military action against Ukraine, which the UK warned was “highly likely” over the weekend, as supportive to crude oil prices. The head of NATO has subsequently called for the military alliance to “diversify” its energy supply (i.e. the EU becoming less reliant on Russia for oil and gas). Moreover, the US government has been engaging the UAE and other Middle Eastern nations to make up for the shortfall if Russian energy exports are barred as a result of sanctions for military action against Ukraine.

Meanwhile, ahead of this week’s OPEC+ meeting, where the group is expected to stick to its policy of gradual 400K barrels per day in output hikes each month, analysts continue to cite concerns about the inability of smaller producers to keep up with production quota hikes. The latest OPEC Monthly Oil Market Report from two weeks ago highlighted Nigeria and Angola as facing the worst production struggles, though Libya has also been a culprit of low supply recently. Elsewhere, one oil market strategist said that an outage of a major pipeline in Ecuador after a spill was also providing support.

To put it bluntly, there are plenty of supply-side factors supporting crude oil at multi-year highs right now. Analysts at Reuters pointed out that the Brent futures curve is in its steepest backwardation since 2013 when oil prices were at the time about $100 per barrel. Last Friday, the Brent future for March delivery was $6.75 more expensive than the Brent future for September delivery, suggestive of expectations that market conditions are expected to be significantly tighter in the near-term than the medium-term. That tightness, said some analysts, is being exacerbated by economic reopening in Europe as Omicron, with much of it having been under some sort of lockdown in late-2021.