Oil hits 7-year high as tight supply bites

LONDON: Benchmark oil prices climbed to their highest since 2014 on Tuesday as possible supply disruption after attacks in the Mideast Gulf added to an already tight supply outlook.

European crude benchmark Brent North Sea reached $88.13 per barrel, while US contract WTI hit $85.74 -- the highest levels since October 2014 -- before easing slightly in later trading. Both benchmarks touched their highest since October 2014 earlier on Tuesday.

Supply concerns have risen this week after Yemen's Houthi group attacked the United Arab Emirates, escalating hostilities between the Iran-aligned group and a Saudi Arabian-led coalition.

After launching drone and missile strikes that set off explosions in fuel trucks and killed three people, the Houthi movement warned it could target more facilities, while the UAE said it reserved the right to "respond to these terrorist attacks".

UAE oil company ADNOC said it had activated business continuity plans to ensure uninterrupted supply of products to its local and international customers after an incident at its Mussafah fuel depot.

"The suspected drone attack in Abu Dhabi underscores the ongoing threat against civilian and energy infrastructure in the region amid heightened regional tensions," said Torbjorn Soltvedt at risk intelligence company Verisk Maplecroft.

"Reports of damage to fuel trucks and storage will concern oil market watchers, who are also keeping a close eye on the trajectory of ongoing nuclear talks between the US and Iran," he added.

OANDA analyst Craig Erlam said OPEC nations and other key producers struggling to meet targets to lift output by 400,000 barrels a month was adding to upward pressure.

"The evidence suggests it´s not that straightforward and the group is missing the targets by a large margin after a period of underinvestment and outages," he noted.

"That should continue to be supportive for oil and increase talk of triple-figure prices."

Meanwhile OPEC on Tuesday said global demand for oil is expected to remain "robust" in 2022 and overcome short-term disruption caused by the Omicron coronavirus variant.

But the Saudi-led group of top oil producers warned future virus strains and pandemic-related travel restrictions could threaten the global economic recovery.

OPEC´s monthly oil market report provided a "robust oil demand forecast", with its estimate for growth of demand unchanged from previous predictions at 4.2 million barrels per day in 2022. Total global consumption is expected to reach 100.8 million barrels per day this year.

OPEC predicted Omicron´s impact "to be mild and short-lived" but said "uncertainties remain regarding new variants and renewed mobility restrictions, amid an otherwise steady global economic recovery".