(Bloomberg, Monday) — Oil prices rose on Monday as traders traded near their highest point since 2014. The market tightened while concerns regarding the effect of omicron eased.

After a light trading session on Monday due to Martin Luther King Jr. Day in the U.S.A, futures ended in New York above $84 per barrel. Trades are only allowed to settle on Tuesday. Brent rose above $86 in the fourth weekly rally, as demand for heating oil increased due to cold temperatures. Meanwhile, geopolitical jitters returned as Yemen’s Houthi fighters claimed to have launched drone strikes on the United Arab Emirates that caused an explosion and fire on the outskirts of the capital Abu Dhabi, leaving three people dead.

The oil market’s structure has firmed in a bullish pattern known as backwardation, with premiums on the nearest-dated contracts indicating growing supply tightness and strong demand. According to Vitol Group trader, high prices can be justified, and futures may rise further. However, gains were dampened Monday by signs that China is slowing its economic growth. 

“The positive spin on price has broken into the third week of January, and the drivers behind the optimism have continuously tightened so far in 2022,” said Rystad Energy’s senior oil markets analyst Louise Dickson. “A mild omicron impact has increased oil demand expectations for the year, all while the supply picture gets tighter on lowered production in particular from OPEC+ countries.” 

This year’s oil rally has been more than 10%, partly due to outages among OPEC+ producer Libya. Last week, the International Energy Agency stated that worldwide consumption was stronger than predicted. However, the physical market continues to boom as buyers focus on the possibility of an omicron.

“There is a genuine belief that physical demand will keep exceeding supply,” said Tamas Varga, an analyst at brokers PVM Oil Associates Ltd. “On the demand side, the cold winter in North America is one of the major factors. Mild omicron symptoms and hopes that the rapid rise in cases is about to abate also contributed to the strength.”

The Covid-Zero policy employed by China probably will ensure that there’s no omicron outbreak big enough to significantly diminish the use of oil products there, Mike Muller, Vitol’s head of Asia, said Sunday during a webinar hosted by Dubai-based consultants Gulf Intelligence.

China’s central bank, meanwhile, cut its key interest rate for the first time in almost two years to help bolster an economy that’s lost momentum because of a property slump and repeated virus outbreaks. Monday’s official data showed that gross domestic product increased 4% last year compared to a previous year, which is the lowest since early 2020.

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