Why have crude oil prices rallied so sharply to $88/bbl?

In just the last few weeks, Brent Crude rapidly crossed $88/bbl. Interestingly, this is the highest crude price level in last 7 years. Such highs were last week in 2014 before the shale led crash in oil prices started. Let us understand why crude is rallying so sharply.

Ironically, the macro headwinds should ideally favour lower oil prices. The Omicron was expected to compress demand by cutting economic activity. However, that has not happened. Also, the shift to green energy was to reduce the attraction of oil. Still crude is at a 7-year high and analysts expect Crude at $100/bbl if aggressive long position in oil futures start building up. That is the oil story and now for the major reason.

Both the US and the OPEC have realized the futility of keeping prices too low. It was this stand-off that had resulted in negative WTI crude in in April 2020. Today, oil supplies are being coordinated a lot better in such a way that the supply always stays below demand. Most oil consumers are still enjoying the lag effect of last 7 years, so they don’t mind. Oil producers are happy and markets are pleased that the world markets are growing as evinced by robust oil prices.