EDITOR'S NOTE: The growing power crisis in Europe and Asia is rising oil prices. Yahoo! Finance reports that U.S. crude oil prices are up over $80 a barrel for the first time since 2014, and U.S. crude futures are also up 1.5% (and are up around 20% since mid-August). Fiona Cincotta, a senior financial markets analyst at City Index, says this is happening because “There is definitely this fear of the supply side going to dry up.” This means that oil and gas prices are going to continue to rise in the coming months. The only possible solution to this problem is if the U.S. can convince OPEC to produce more to help ease these skyrocketing prices.
(Bloomberg) -- Global benchmark Brent crude advanced, approaching $85 a barrel, as a growing power crisis from Europe to Asia boosts demand for oil ahead of winter.
Brent futures rose as much as 2.7% to the highest since October 2018 on Monday. Prices of coal and natural gas have surged globally with stockpiles running low before the Northern Hemisphere winter, prompting some switching to oil products such as diesel and fuel oil.
It is quickly tightening the market as the Organization of Petroleum Exporting Countries and its allies are sticking with their plan to only gradually roll back production cuts. The oil market’s price structure is flashing bullishness, with the difference between New York crude’s front two contracts surging to the widest in more than two years, indicating shrinking supplies in the U.S. storage hub of Cushing, Oklahoma.
“There is definitely this fear of the supply side going to dry up,” said Fiona Cincotta, senior financial markets analyst at City Index. Even OPEC adding back supply to the market is not “necessarily going to have a massive impact on cooling the price of oil. Oil to $90 is clearly in sight.”
Brent crude has advanced about 20% since mid-August as the energy crisis has intensified. Saudi Aramco estimates the gas shortage has already increased oil demand by around 500,000 barrels a day, while Citigroup estimates it could reach about 1 million a day in a bullish case.
Citi raised its Brent price estimate for this quarter to $85 a barrel, potentially increasing to as high as $90 at times, on “higher demand, lost supply, gas-to-oil switching and price contagion this winter,” according to a report.
Various underlying oil market gauges are showing signs of strength. WTI crude’s nearest contract traded at the biggest premium to second-month futures since September 2019, in a sign of tighter supplies. The so-called prompt spread has increased as more of the world attempts to substitute fuel oil for natural gas as quickly as possible.
A favored oil trade of the world’s hedge funds, WTI crude’s so-called Dec.-Red-Dec. spread, also strengthened. The spread topped $8 a barrel and is at the strongest on a rolling basis since 2014.
Still, there’s a possibility that signs of slowing global growth -- partly because of soaring energy prices -- will ease some of the demand pressure on crude. Goldman Sachs Group Inc. cut its forecasts for U.S. expansion this year and next, blaming a delayed recovery in consumer spending. The energy crises in China and India may also lead to a slowdown in Asia.
Originally posted on Yahoo Finance.