Oil surged past $80 a barrel as the global power crunch rattled a market in which Opec+ has only been restoring output at a modest pace.
West Texas Intermediate futures climbed around 2 percent after topping the psychological price threshold on Friday for the first time since November 2014. The prices of fuels such as coal and natural gas are soaring in Europe and Asia as stockpiles run low ahead of the Northern Hemisphere winter, prompting a switch to oil products such as diesel and kerosene.
The American crude benchmark has risen almost 30 percent 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 Goldman Sachs Group Inc. sees consumption climbing even higher. Concerns were compounded further after the US Energy Department said it had no plans “at this time” to tap the nation’s oil reserves.
A decision last week by the Organization of the Petroleum Exporting Countries and its allies to stick to a plan of returning just 400,000 barrels a day to the market in November has added more upward price pressure as many analysts had anticipated the group would pump more. WTI’s prompt time spread is now 71 cents a barrel in backwardation, a bullish structure where near-dated prices are higher than those further out, from 29 cents a week ago.
“Opec’s decision to hold back from a bigger than scheduled increase in output is likely to see the market tighten further in the fourth quarter,” said Daniel Hynes, a senior commodity strategist at Australia & New Zealand Banking Group Ltd. The “market remains well bid as demand continues to grow,” he said.
There’s a possibility that signs of slowing global growth will ease some of the demand pressure on crude, however. Goldman cut its forecasts for US expansion this year and next, blaming a delayed recovery in consumer spending. The bank said in a note that it now sees growth of 4 percent in 2022, down from a previous estimate of 4.4 percent. The energy crises in China and India may also lead to a slowdown in Asia.
Iran, meanwhile, said over the weekend, that it plans to offer oil and gas condensate to “any investor” in exchange for either goods or capital investment in the Islamic Republic’s sanctions-hit energy sector. That comes amid stalled discussions to get an international deal on its nuclear program, which would allow it to start exporting oil officially again. The coming weeks will be decisive for Iran’s nuclear program, said German Chancellor Angela Merkel, urging Tehran to come back to the negotiating table.