Brent oil roared above US$80 a barrel on signs that demand is running ahead of supply, depleting inventories amid a global energy crunch.
The leading crude benchmark rose for a sixth day to hit the highest since October 2018, while West Texas Intermediate extended gains.
Oil’s latest upswing has come with a flurry of bullish price predictions from banks and traders, further gains in natural gas and speculation that the energy industry is not investing enough in fossil fuels to keep supplies at current levels.
Photo: AFP
Oil has rallied this year as the rollout of vaccines to combat the COVID-19 pandemic aids energy demand, spurring a drop in US inventories.
A dramatic surge in natural gas has stoked bets that crude will benefit from spillover demand as users seek alternatives.
Trafigura Group, one of the world’s largest commodity trading houses, is among those that are forecasting higher oil prices.
“It looks like the oil rally has still got some legs,” JTD Energy Services Pte lead strategist John Driscoll said. “Fundamentals are still pretty convincing, demand is recovering, backwardation is increasing. I just don’t see any evidence yet that the rally has topped out.”
While worldwide demand has increased, the OPEC and its allies, including Russia, have been easing supply curbs with great caution.
Crude demand could rise 500,000 barrels a day as high gas prices force a switch, Commonwealth Bank of Australia analyst Vivek Dhar said in a note.
That would tighten markets further, especially with OPEC+ making only conservative additions to supply, Dhar said.
US natural gas rallied again yesterday.
Inventory draws are the “largest on record” and OPEC+ cannot restore the market’s balance, Goldman Sachs Group Inc said in a note this week.
The deficit “will not be reversed in coming months, in our view, as its scale will overwhelm both the willingness and ability of OPEC+ to ramp up,” Goldman Sachs said.
Global oil consumption is expected to return to pre-pandemic levels in the third quarter of next year, BP PLC said.
Demand is expected to see an average gain of 3.8 million barrels per day from the same period last year, BP Singapore president Eugene Leong said in an interview.
Oil’s time spreads have widened, signaling that traders are more positive. Brent’s prompt spread was US$0.80 a barrel in backwardation, from US$0.63 two weeks ago. That is bullish, with near-dated prices above those further out.
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