(Bloomberg) — Brent oil reached $80 a barrel amid signs that demand is ahead of supply, depleting supplies amid a global energy crisis.
Most read by Bloomberg
The leading crude oil benchmark rose for a sixth day, reaching its highest level since October 2018, as West Texas Intermediate extended its gains. The latest oil rebound has come amid a wave of bullish price predictions from banks and traders, further gains in natural gas and speculation that the energy industry is not investing enough in fossil fuels to keep stocks at current levels.
The price of oil has soared this year as the rollout of vaccines to fight the pandemic fuels energy demand, leading to a decline in US inventories. A dramatic increase in natural gas has raised bets that crude oil will benefit from overflow demand as users look for alternatives. Trafigura Group, one of the world’s largest commodities trading houses, is among those forecasting higher oil prices.
“It looks like the oil rally has some legs left,” said John Driscoll, chief strategist at JTD Energy Services Pte. “The fundamentals are still quite convincing, demand is recovering, backwardation is increasing. I just don’t see any evidence yet that the rally has reached its peak.”
As global demand has increased, the Organization of the Petroleum Exporting Countries and its allies, including Russia, have been easing supply restrictions with great caution. Later Tuesday, OPEC will release its World Oil Outlook, outlining the group’s views on market fundamentals.
Crude oil demand could rise by 500,000 barrels a day as high gas prices force a switch, Commonwealth Bank of Australia analyst Vivek Dhar said in a note. That would further tighten markets, especially with OPEC+ only making conservative additions to its offering, Dhar said. US natural gas rose again on Tuesday.
Stock pulls are the “biggest ever” and OPEC+ cannot rebalance the market, Goldman Sachs Group Inc. said. earlier this week in a note. The deficit “will not be reversed in our view in the coming months, as its size will overwhelm both OPEC+’s willingness and ability to step up,” it said.
According to BP Plc, global oil consumption is expected to return to pre-pandemic levels by the third quarter of 2022. Demand is expected to grow at an average rate of 3.8 million barrels per day over the year, Eugene Leong, president of BP Singapore, said in an interview.
Oil time spreads have widened, signal traders are more positive. Brent’s fast spread was 81 cents a barrel in backwardation, from 63 cents two weeks ago. That’s bullish, with near-dated prices higher than those further out.
Most read from Bloomberg Businessweek
©2020 Bloomberg LP