(Bloomberg) — Oil surged to multiyear highs, spurred by an energy-supply crunch as winter approaches.
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Global benchmark Brent futures earlier rose above $86 a barrel, reaching the highest intraday level since 2018, as Russia opted to keep a lid on gas flows to Europe. West Texas Intermediate crude neared a seven-year high.
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.
China’s energy crisis contributed to the nation’s economic growth slowing in the third quarter, compared to the same period last year, as electricity shortages in September forced factories to curb output or shut completely. The power outages also impacted crude processing last month, with refining rates dropping to the lowest level since May 2020.
India’s diesel consumption, however, is gathering pace with the onset of annual festivals, increasing sales to pre-virus levels in the first half of October. Separately, the battered aviation sector is also poised for a boost, with the U.S. set to open its borders to vaccinated foreigners on Nov. 8.
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