Brent oil takes out $86 as Saudi Arabia vows caution on supplies

Brent oil rallied above $86 a barrel after Saudi Arabia urged caution in boosting supply, while an eye-watering rally in market structure deepened. 

Brent for December settlement added 0.6 per cent to $86.01/bbl at 10:24 a.m. in London. WTI for December delivery rose 0.6 per cent to $84.28/bbl.

Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman told Bloomberg Television at the weekend that producers shouldn’t take the rise in prices for granted.

The strengthening in prices has been outpaced by an even faster rally in so-called timespreads, which gauge the health of the market. WTI for immediate delivery was trading at more than a dollar higher than the next month as traders pay premium prices to secure supplies. The closely watched spread between the nearest two December contracts was the strongest since 2013. 

Oil has more than doubled over the past 12 months, fanning inflationary concerns, as the global economy rebounded from the dislocation caused by the coronavirus pandemic. Goldman Sachs says the natural gas crisis is boosting demand by one million bbls/d and that global oil consumption is on the brink of returning to pre-COVID levels. Meanwhile, OPEC+ has been restrained in easing the supply cuts imposed in 2020 to salvage prices. 

“Continuous global stock drawdowns are still widely anticipated in the coming months and only a dent in demand growth could change the underlying sentiment,” Tamas Varga, an analyst at brokerage PVM Oil Associates. 

Prince Abdulaziz said that demand may increase 500,000-600,000 bbls/d if the Northern Hemisphere’s winter is colder than normal and companies switch from gas to crude, he also cautioned that more barrels from OPEC+ would do little to curb costs of gas in Europe and Asia or gasoline in the U.S.

© 2021 Bloomberg L.P.

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