Oil prices have risen to a new three-year high going above US$85 per barrel on forecasts of a supply deficit over the next few months, as rising gas and coal prices trigger switch to oil products.
Crude futures have also climbed up in recent weeks as natural gas prices hit record levels. US West Texas Intermediate crude futures rose 81 cents, or 1 per cent to US$82.12 per barrel. The futures contract is likely to make a gain of 3.5 per cent, up for the eighth consecutive week.
Also, some banks expect the switch to oil from gas is boosting prices further as winter approaches in the northern hemisphere. It’s starting to deplete stockpiles, with the US crude storage hub of Cushing recording an unusually large drop following the high demand in the year.
Once again, global stocks have made additional gains, riding on the back of the increase in the price of crude; US and London stocks made strong earnings, Asian and European equities also advanced as a result of the high prices.
The International Energy Agency (IEA) is on record to have said that the crisis is spilling into oil markets and could add 500,000 b/d to demand in the coming months. This ongoing trend is mounting pressure on the Organization of Petroleum Exporting Countries (OPEC) and its allies accommodate a gradual phased approached to raising oil output.
Rising prices from oil and gas to coal are surging global inflation and posing a challenge to policy makers. While this helps to stoke a raise in revenues of oil producing countries, it risks slowing down the growth of economies fighting hard to scale above the pandemic.
Rise of crude oil to US$100 is possible
Additionally, copper jumped above US$10,000 a ton as inventories fell to the lowest since decades, while zinc hit a 14-year high. Benchmark natural gas in Europe fell but is heading for a weekly gain.
Market analysts are projecting that oil prices may reach as high as US$100, given the existing demand-side pressures and the lingering supply deficit.
United Arab Emirate’s Energy Minister Suhail Al-Mazrouei said on Thursday, October 14, 2021, that “reducing or increasing the production suddenly by a large amount is not going to help. Oil at US$100/b is quite possible.”
Analysts pointed to a sharp drop in OECD oil stockpiles to their lowest level since 2015. Demand has picked up with the recovery from the COVID-19 pandemic, with a further boost coming from industry turning away from expensive gas and coal to oil and diesel for power.
The hikes in prices amid the demand surge is starting to put pressure on major consumers of oil products, with the US joining in talks to persuade OPEC+ increase oil supply.
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