(Bloomberg) — Oil surged to the highest level in seven years as robust demand and strained supplies make physical markets run hot in the world’s largest consuming region.

New York Futures ended up at $85.43 per barrel, their highest closing price since October 2014. As fears about the impact of omicron on demand diminish, traders are now paying more premiums to cargoes from Asia. However, supplies are being squeezed by outages from North America and Libya. Geopolitical risk was heightened by Monday’s drone strike on United Arab Emirates oil facilities.

To add to bullish indicator, Goldman Sachs Group Inc (NYSE:). It raised its expectations for 2022-2023 and forecast $100 oil by the end of the third quarter. Robust fundamentals have reversed last year’s price slump, keeping the market in a surprisingly large deficit, it said.

“Oil was already vulnerable to price spikes as the market was tight before the recent wave of headlines,” said Ed Moya, Oanda’s senior market analyst for the Americas. “With optimism that the demand outlook is still going to improve, energy traders are ready to pump up oil prices.”

Oil’s rally poses a challenge for consuming nations and central banks as they try to stave off inflation while supporting global growth. In particular, it’s a headache for U.S. President Joe Biden as his efforts to tame gasoline prices by tapping emergency stockpiles — and by cajoling OPEC — fail to yield results.

Crude oil has had a hot start to this year, with no shortage of supply from producers like Libya. This only adds to the optimism brought on by high demand. All parts of the oil industry are positive, including diesel and jet fuel. Europe is seeing a boom as the impact on air travel has been reduced. 

The Organization of Petroleum Exporting Countries said in its monthly report that it expects global oil markets to remain “well-supported” this year by robust demand. The group also reiterated its forecast from last month that “the impact of the omicron variant is projected to be mild and short-lived” — a projection that has so far remained true.

The physical-market strength has been compounded by renewed tension in the Persian Gulf, home to about 40% of the world’s seaborne oil. 

Yemen’s Houthi fighters claimed to have launched a drone strike on the United Arab Emirates that caused an explosion and fire on the outskirts of the capital Abu Dhabi. It is the third-largest OPEC producer. 

According to Amrita Sen (chief oil analyst, Energy Aspects), low crude stocks mean that there is not enough supply for any outages in producers countries. Therefore, the market is vulnerable to price hikes. 

“When you have buffers, small outages like what we have seen over December and January matter a lot less, but we don’t have that luxury,” Sen said.

The White House is planning to keep prices under control in light of global growth. It will also continue discussions with OPEC+ nations as required, Emily Horne, a spokesperson for National Security Council said Tuesday. Increased gasoline prices have been a major driver of inflation during Biden’s term, and the White House has sought to contain costs for motorists. 

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