Oil Prices Hit 12-Week High Amid Winter Storm and Geopolitical Tensions

Oil prices reached a 12-week high on Monday driven by a combination of factors including increased demand for energy during a winter storm in the U.S., a weaker U.S. dollar, and expectations of tighter sanctions on Iranian and Russian oil exports.

Brent futures climbed 27 cents to $76.78 a barrel, while U.S. West Texas Intermediate crude also rose 27 cents to $74.23 a barrel, marking the sixth consecutive day of gains for both benchmarks.

Weather forecasts predicting colder temperatures in the northern hemisphere have pushed both Brent and WTI into technically overbought territory, with Brent on track for its highest close since October 14 and WTI since October 11.

Interest in energy trade has been on the rise, as evidenced by the surge in open interest in WTI futures on the New York Mercantile Exchange to 1.933 million contracts, the highest since June 2023.

The winter storm sweeping across the U.S. has increased heating demand, leading to a spike in natural gas futures and diesel futures on track for their highest close in 13 weeks.

A weakening U.S. dollar, driven by speculation of tariffs on critical imports, has made dollar-priced commodities like oil more affordable for buyers using other currencies.

In China, the yuan hit its weakest level in 16 months against the U.S. dollar, influenced by trade concerns in the world’s second-biggest economy.

Saudi Aramco, the world’s top oil exporter, raised crude prices for Asian buyers in February for the first time in three months, indicating a positive outlook on demand.

However, in Germany, higher-than-expected inflation in December could prompt central banks to raise interest rates, potentially slowing economic growth and energy demand.

Geopolitically, the Biden administration is poised to impose more sanctions on Russia over its actions in Ukraine, particularly targeting its oil revenues by restricting tankers carrying Russian crude.

Goldman Sachs predicts a decline in Iranian oil production and exports in the second quarter due to policy changes and tighter sanctions under the new U.S. administration.

On a positive note, Sudan lifted a force majeure on the transport of crude oil from South Sudan to a Red Sea port after security conditions improved, potentially boosting oil supply.