WTI hits $87.00 level for first time since 2014 as Iraq-Turkey pipeline outage sparks fresh supply concerns

• WTI hit $87.00 for the first time since September 2014 on Wednesday.
• A momentary outage of an Iraqi-Turkish pipeline was attributed as driving the most recent gains.
• But the broader themes of tighter than expected market conditions and rising geopolitical concerns are also keeping oil underpinned.

Oil prices scaled fresh multi-year highs on Wednesday with front-month WTI futures hitting the $87.00 per barrel level for the first time since September 2014. Market commentators have cited news of disruption in oil flows along a pipeline carrying crude from Northern Iraq to Turkish port Ceyhan as behind the latest run of gains. Oil flows along the Kirkuk-Ceyhan pipeline (estimated at about 150K barrels per day) have since resumed on Wednesday, with the disruption as a result of a falling power pylon, not an attack as some had feared.

So all in all, the one-day disruption amounts to little more than a drop in the ocean in terms of global oil supply. But the news was enough to add further momentum to the idea that global oil markets at the start of 2022 are significantly tighter than expected just a few months ago, whilst demand remains resilient. Recall that smaller OPEC+ nations have struggled to keep up with rising output quotas in recent months, leading to excessively and involuntarily high levels of compliance to the group’s output cut pact (about 127% at the end of 2021).

Meanwhile, geopolitical concerns about supply security have amped up this week amid fears that Russia (the world’s third-largest supplier of roughly 11M barrels per day) might be on the brink of invading Ukraine. Meanwhile, tensions in the Middle East and around the Gulf Strait between the Saudi-led Sunni coalition and Iran-backed Shia militias based in Yemen rose earlier in the week after the former launched a surprise attack on the latter’s oil infrastructure.

Though the IEA, in its monthly report released on Wednesday, said that oil markets would return to surplus after Q1 2022, the agency raised its global demand growth forecast for the year. The agency also warned that commercial oil and fuel stocks in developed countries had fallen to their lowest levels in seven years and, as a result, any potential dents to supply this year could result in higher than usual levels of oil market volatility. Analysts continue to call for tighter than expected oil market conditions in 2022 to result in (Brent) hitting $100 per barrel.  

Ahead, attention now turns to the release of weekly US private API inventory figures which will be released at 2130GMT and are likely to show crude oil stocks being drawn on for an eighth consecutive week.