LONDON – As crude futures leap higher, traders and analysts are increasingly talking about when – not if – prices return to US$100 a barrel.

Across the world, premiums for physical barrels are surging.

Supplies from the Middle East, Azerbaijan and even Russia are commanding premiums as refiners clamber to make enough diesel ahead of a seasonal ramp up in demand.

Bullish analysts argue that even with crude now in the mid-US$90s, many funds remain underinvested in oil, creating the potential for higher prices yet to come.

Chevron Corporation chief executive Mike Wirth sees oil reaching US$100 a barrel, he said in an interview on Bloomberg Television.

Benchmark Brent has risen more than 30 per cent since its nadir in March.

Production cuts by Saudi Arabia and Russia have steadily tightened supplies at a time when consumption has surged to a record.

That is eating into stockpiles and forcing refiners to snap up barrels to make enough of the right type of fuels. 

“Fundamentals are very, very strong right now,” Dr Amrita Sen, head of research at consultant Energy Aspects, said on Bloomberg Television. “At this point it’s a short-term thing. I’m not saying it’s going to average above US$100, but could it go to US$100 for a bit? Absolutely yes.”

The strength is being led by the physical markets, where traders buy oil from the producer and sell it to the refiner for immediate delivery.

One of the clearest examples is Azerbaijan’s flagship Azeri Light crude, which was trading close to US$100 a barrel on Friday as strong profits for turning crude into diesel mean processors are paying bumper premiums for grades that produce a lot of the fuel. 

Those same margins also see once-maligned Russian barrels trading above their benchmark in Asia again, traders said.

They were at a discount for much of the time after the country’s invasion of Ukraine.

It is against that backdrop that even some of the market’s most bearish analysts are starting to concede that US$100 looks more likely, particularly given longstanding political risks in producers such as Libya and Nigeria.

Geopolitics, alongside technical trading, “could push oil over US$100 for a short while”, Citigroup analysts wrote on Monday.

“However, we continue to see progressive loosening on the horizon.”

Part of that decline, Citi argues, will be driven by a growth in supply from outside the Opec+ alliance.

It cites countries  – including the United States, Guyana and Brazil – that can all add barrels to the market in coming months and derail the current tightness.

For now, though, revenue in producing nations is surging.

On Friday, Murban oil from the United Arab Emirates was trading at the strongest level since February and rose further on Monday.

Barrels from Qatar to West Africa also are soaring, and Saudi Arabia’s flagship grade is near US$100.

Those spikes are shifting the focus to demand and the impact on consuming nations.

The Reserve Bank of India said on Monday that crude oil above US$90 a barrel poses a new risk to global financial stability.

While Brent is yet to hit triple digits in 2023, refined fuels such as petrol and diesel have been trading above that level for months. BLOOMBERG