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Crude oil prices surged to a nine-month high on Friday on strong demand from China, relatively low supplies from the Opec oil cartel and geopolitical concerns.
Brent crude hit a session high of $118.41 a barrel, and later traded up 97 cents to $118.20 a barrel. Oil prices had not been as high since early May, when fears about a wave of sanctions on Iranian oil exports drove prices sharply higher.
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China, the world’s second largest crude oil importer, in January bought 5.92m barrels per day overseas, the highest amount for any month and up 7.4 per cent from a year ago. The buying spree came as refineries boosted production of oil products ahead of the Lunar New Year holiday, when demand increases.
The surge in Chinese demand comes as analysts said that global demand for crude oil appears to be picking up after a lacklustre second half of last year.
“Global oil demand has surprised to the upside in recent months, consistent with the pick-up in economic activity,” Jeffrey Currie, head of commodities research at Goldman Sachs, said on Friday in a note to clients. “We expect the global market to remain tight throughout the first quarter,” he added.
The increase in global demand comes just as the Opec oil cartel, which accounts for roughly 40 per cent of the world’s oil supplies, cuts production to a year low. Saudi Arabia, Opec’s de facto leader, kept production last month at about 9.2m b/d, the lowest in a year and sharply less than the peak of 10.2m b/d in mid-2011.
The global energy market is also worried about instability in North Africa, particularly in Algeria, due to the threat of further terrorist attacks, and in Libya where the energy industry is struggling in the post-civil war reconstruction.
West Texas Intermediate, the US, benchmark, rose to $96.36 a barrel. The price difference between the Brent and the WTI crude oil benchmarks widened to more than $22 a barrel, the most in seven weeks.
WTI is under performing Brent due to a glut of crude oil in the centre of the US because rising production and lack of pipelines to move the new supply to the refining centres.
