Brent crude oil prices have risen, for the fifth consecutive day on Monday, nearing US$80 a barrel amid supply constraints as demand gains momentum in UK, Europe and other economies.
This rise in oil prices reflect the highest since October 2018. Brent crude rose by US$1.15 or 1.5 per cent at US$79.24 per barrel, having realized gains in recent weeks. U.S. Oil added1.5% to US$75.05, near its highest since July, after rising for a fifth consecutive time last week.
Goldman Sachs raised its forecast for Brent crude, anticipating the commodity will finish the year at US$90 per barrel. This is buoyed by the rising demand for fuel from the outbreak of the Delta variant of the coronavirus and production disruptions due to Hurricane Ida, leading to tight global supplies.
“While we have long held a bullish oil view, the current global supply-demand deficit is larger than we expected, with the recovery in global demand from the Delta impact even faster than our above-consensus forecast and with global supply remaining short of our below consensus forecasts.”
Goldman Sachs
Meanwhile, the rise of Brent crude prices has also seen global energy amass gains. The surge in oil price is stoking speculation that global inflation will prove longer-lasting than anticipated. Thus, forcing central banks to act while also benefiting from so-called reflation investments as rates rise.
Oil futures have climbed to US$9 a barrel over September 2021, but Brent Crude currently trades at US$79.24 a barrel. On top of the surge in European gas prices, the oil price rises risk further inflaming inflation expectations.
Investors reposition their portfolio as oil price surges
Investors are therefore realigning their portfolios, as U.S. Treasury yields, the key determinant of global capital costs stands at 1.49 per cent, the highest since end-June 2021. The stronger rise in U.S. yields, especially on an inflation-adjusted basis, is also lifting the dollar. The dollar rose 0.15 per cent against a basket of major currencies.
Besides, OPEC+, the Organization of the Petroleum Exporting Countries and their allies, have found it difficult increasing their output to meet the rise in demand. These are attributed to dwindling investments or maintenance delays associated with the pandemic’s impact.
Also, the European crude benchmark also experienced similar sentiments of bullish prices due to broader energy complexities.
For China, its first public sale of state oil reserves has barely led to cap gains. PetroChina and Hengli Petrochemical bought four cargoes totalling about 4.43 million barrels.
Still, a power supply crunch in China which is fueling an industrial contraction and pressuring the economic outlook is adding to concerns. This is as a result of property firm, Evergrande, losing bond coupon payment and is likely to miss bond coupon payment in the coming days.
Meanwhile, global oil demand is back to converging to pre-COVID levels. Although the worst was anticipated at the emergence of the delta variant, traffic congestion in China quickly recovered after a summer dip. And fears of huge decline in global flights, driven by the delta variant was smaller than originally feared.
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