(Bloomberg) – Oil has peaked in seven weeks, with OPEC + supply constraints to North America offsetting concerns about the impact of a severe Covid-19 outbreak in China.

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Futures rose 1.8% to trade above $ 79 a barrel in New York after recouping earlier losses. A freeze in Canada and the northern United States is disrupting oil flows, causing prices to soar just as U.S. inventories are dwindling. The protests in Kazakhstan posed the biggest challenge to the leaders of OPEC + members in decades, prompting Russia and its allies to say they would send troops.

Growing premium for fast barrels suggests supply issues within the OPEC + coalition – which was only able to deliver part of the production increase expected last month – is delaying the start of an oversupply expected in world markets. Production in OPEC member Libya is down about 30% due to unrest between militias, while Russia failed to ramp up production last month.

“Oil likely derives its support from supply issues as the freeze in North America impacts production and concerns emerge about a potential disruption in Kazakhstan,” said Giovanni Staunovo, analyst at UBS AG in Zurich. .

Still, prices face headwinds as China locks down cities to try to stem the spread of the worst Covid-19 outbreak since the initial eruption in Wuhan. Meanwhile, Federal Reserve officials said a strengthening economy and higher inflation could lead to earlier and faster than expected interest rate hikes, according to the minutes released on Wednesday.

Oil ended 2021 on a solid footing as the vaccine rollout helped economies reopen, boosting demand for energy and allowing OPEC + to maintain its gradual monthly increases in production. However, some members of the group struggled to meet their goals, hampering the expected overall return of procurement.

“Investors are avoiding risky assets, including oil, amid possible aggressive Fed rate hikes, in addition to growing concerns about demand in China,” said Will Sungchil Yun, senior commodities analyst at VI Investment Corp. in Seoul. “Prices are likely to be under pressure in the short term.”

Following the December meeting, the FOMC announced that it would end the Fed’s bond buying program at a faster pace than expected at the previous meeting in early November, citing the growing risks associated with it. to inflation. The new schedule puts the central bank on track to complete purchases in March.

IHS Markit further lowered its projection of China’s total oil demand in the first quarter of 2022 to 420,000 barrels per day due to mobility restrictions. Likewise, Energy Aspects Ltd. lowered its first quarter forecast by 110,000 barrels per day, while warning that there is a risk of further decline to 100,000 to 300,000 barrels per day if new outbreaks occur.

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