Oil posts its strongest January in decades as market tightens

(Bloomberg) — Oil had its biggest January gain in at least 30 years as robust demand outpaced fresh supply. 

The global benchmark settled above $91 a barrel, posting a 17% gain this month. The combination of booming demand, scratchy supply and dwindling stockpiles has helped crude soar this month, with top banks and oil companies saying prices may soon pass $100 a barrel.

Crude’s rally is really “a supply story,” said Rob Haworth, senior investment strategist at U.S. Bank Wealth Management. “Crude is flying in the face of a strong U.S. dollar and a weak global stock market. It comes down to its own fundamentals more than anything else.”

Traders were greeted Monday with a familiar set of drivers, from the weather to stockpiles. Low temperatures in the U.S. have been boosting demand for fuels, as Boston reported a daily snow record over the weekend and New York’s Central Park received more than 8 inches (20 centimeters.) An oil pipeline in Ecuador was damaged by a rock slide, potentially endangering supply. Meanwhile, oil held on tankers fell by more than 20% last week, the latest sign of ebbing inventories.

While the advance has gained extra support as Russia amasses troops near Ukraine, it also has been compounded by the inability of the Organization of Petroleum Exporting Countries and its allies to meet planned supply output increases. The OPEC+ alliance gathers Wednesday to assess the market.

As economies continue to recover from the pandemic, oil product markets are roaring. Refiners across the globe are making robust profits from producing gasoline, with the demand outlook signaling continuing strength.

Global oil markets are in backwardation, a bullish pattern in which near-term contracts command a premium to those further out.