Oil prices have been climbing steadily since the beginning of this year with the latest gains blamed on supply constraints and a weaker US dollar.

The benchmark Brent crude is currently priced at US$86.15 per barrel, up more than 10% from the beginning of 2022.

It comes despite China reporting a 5.4% decrease in oil imports in 2021, the first drop since 2001 as Beijing clamps down on the refining sector to curb excess domestic fuel production.

Traders were also unfazed by reports that China had reached an agreement with the US to release crude oil from its national strategic stockpile around the Lunar New Year holidays to reduce global prices.

Reuters reported a source as saying that the exact volumes will depend on how high oil prices are.

The US dollar has also fallen due to positioning and technical selling.

Supply disruptions, diminishing inventories and demand outlook

Oil had jumped last week following supply disruptions in Libya and Kazakhstan, a fall in US crude inventories to their lowest since 2018, and an improvement in the outlook for fuel demand in Europe as governments ease COVID-19 restrictions.

In Libya, political uncertainty and ageing infrastructure have meant that its oil production has dropped to about 700,000 barrels per day, the lowest it has been in over a year.

Meanwhile, US crude inventories in the week to January 7 fell by 4.6 million barrels to 413.3MMbbl.

This marks the seventh consecutive drop as overall inventories across the globe tighten amidst recovering demand while major producers struggle to increase supplies.

European oil demand is also poised to recover on expectations that the spread of the Omicron variant of COVID-19 will not derail the global recovery.

US Federal Reserve chair Jerome Powell has said that he expects the economic impact of Omicron to be short-lived while OANDA analyst Jeffrey Halley said that “Omicron has yet to wreak the havoc of the Delta variant and may never do so”.

Already, European refiners’ crude and oil products stocks in December dropped by more than 11% from a year earlier.

European jet fuel refining margins have also returned to pre-pandemic levels.