Oil touches multiyear highs with energy crunch intensifying

Image: Bonterra

Oil surged to multiyear highs, spurred by an energy-supply crunch as winter approaches.

Brent for December settlement rose one per cent to $85.69/bbl by 1:22 p.m. in London, after trading as high as $86.04.

WTI for November delivery rose 1.5 per cent to $83.52 in New York. It earlier reached $83.87, this highest intraday level since October 2014.

A shortage of natural gas is creating extra demand for oil products like fuel oil and diesel from the power generation sector, coinciding with key economies rebounding from the pandemic. Meanwhile, the OPEC+ alliance is still only adding incremental, monthly supplies, and some members aren’t expected to meet current output targets. 

“The oil market continues to focus on the ongoing global energy crunch,” said Helge Andre Martinsen, senior oil market analyst at DNB Bank. Record-high gas prices, the effect of gas-to-oil switching, and OPEC+ deciding not to offer additional volumes are supportive, he added.

Gazprom PSJC, Europe’s biggest natural gas supplier, doesn’t plan to send more gas via key transit routes through Ukraine next month, according to the results of several auctions on Monday. It will send only limited volumes via Poland. “The Gazprom story will just add fuel to the fire,” helping to push oil prices higher, DNB Bank’s Martinsen said.

Meanwhile, Iran said that talks about a nuclear deal could last for several more rounds. The OPEC member could increase production by 1.3 million barrels a day if U.S. sanctions were lifted, the International Energy Agency said last week.

© 2021 Bloomberg L.P.

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