WTI eases back below $88.00 level after printing fresh seven-year highs, OPEC+ meeting next week eyed

• WTI hit fresh seven-year highs at $88.82 on Friday, but has since pulled back under $88.00 again.
• WTI remains on course for healthy on the week gains of about $3.0, a sixth successive week in the green.
• Geopolitics and OPEC+ output capacity remain concerns that are supportive for prices as focus switches to next week’s OPEC+ meeting.

Front-month WTI futures hit fresh seven-year peaks on Friday, reaching $88.82 for the first time since October 2014, before pulling back somewhat to just below $88.00 again. Still, that leaves WTI trading more than 50 cents higher on the session and about $3.0 higher on the week. Indeed, WTI is on course to post a sixth successive weekly rally, a run that has seen the American benchmark for sweet light crude oil rally more than $20.00 from the low-$66.00s. The next area of major upside resistance is the psychologically important $90.00 level and then the late-2013 lows in the mid-$91.00s just above it.

Oil market analysts continue to cite a combination of bullish factors on both the demand and supply side as supporting the recent rally. Firstly, on the demand side, as the Omicron variant fades in major developed economies facilitating “reopening”, demand has held up and is expected to post strong growth for the year. Meanwhile, on the supply side, market commentators continue to cite OPEC+ capacity constraints and geopolitical tensions between NATO/Ukraine/Russia as supportive. Traders have also cited an increase in the threat to UAE output presented by an uptick in Iran-back Houthi militias based in Yemen.

“The risk premium on the oil price is now likely to be almost $10/bbl,” said analysts at Commerzbank. These factors helped to support oil this week in the face of large surprise crude oil inventory builds in the US. Attention now turns to next week’s OPEC+ meeting where sources have already said the cartel is set to stick to its existing policy of hiking output quotas by 400K barrels per day each month. Market participants remain highly skeptical about the group’s ability (particularly the smaller producers) to keep up with output quota hikes.