Oil prices rose higher on Monday following an eighth weekly gain, buoyed by recovering demand and high natural gas and coal prices which has encouraged users to switch to fuel oil and diesel for power generation.
The Brent crude, the global benchmark, was up by 85 cents to trade at $85.71 a barrel, while the Western Texas Intermediate (WTI) was at its strongest in almost 7 years on Monday.
The WTI was up $1.26 to trade at $83.54 per barrel after hitting $83.73 per barrel earlier on Monday, their highest since October 2014, while natural gas dropped by 90 cents to trade at $5,320.
According to Bloomberg, futures in New York were above $83 a barrel after adding 3.7% last week, capping the longest run of weekly gains since 2015. The global natural gas crisis is creating extra demand for oil products like fuel oil and diesel from the power generation sector as consumers switch to alternatives. That’s coincided with key economies rebounding from the pandemic.
Some analysts had noted that the easing of restrictions around the world are likely to help the recovery in fuel consumption adding that gas-to-oil switching for power generation alone could boost demand by as much as 450,000 barrels per day in the fourth quarter.
The cold temperatures in the northern hemisphere are also expected to worsen an oil supply deficit.
Meanwhile, despite the rise in oil prices with demand outstripping supply heading into the winter months, OPEC+ alliance is still only adding incremental, monthly supplies as some members are not even expected to meet current output targets.
What you should know
The energy sector has been hit with a global gas crisis in recent times with rising natural gas prices as coal, electricity, and natural gas shortages lead to additional demand for crude and it appears that won’t be accompanied by significantly extra barrels from OPEC+ or the U.S.
The oil market deficit seems poised to get worse as the energy crunch will intensify as the weather in the north has already started to get colder.
The energy crisis has contributed to the weakening of the Chinese economy in the third quarter, as electricity shortages in September forced factories to reduce output or shut completely. The power outages also impacted crude processing last month, with refining rates dropping to the lowest level since May 2020.
Meanwhile, India’s diesel consumption has been increasing pace with the onset of annual festivals, increasing sales to about pre-virus levels in the first half of October. The battered aviation sector is also poised for a boost, with the U.S. set to open its borders to vaccinated foreigners on November 8.