After a five-week winning streak, West Texas Intermediate surpassed $75 per barrel, while Brent reached its highest level since October 2018. Inventories have been shrinking, with stockpiles in the United States reaching a three-year low. At the same time, a natural gas boom appears to be driving demand for oil as consumers switch fuels. Oil prices have soared by more than 80% in the last year as global demand recovers from the pandemic’s interruption.
On the supply side, the Organization of Petroleum Exporting Countries (OPEC) and its allies, including Russia, have been gradually loosening output caps, allowing markets to tighten. Furthermore, harsh weather in the United States has hampered local production. Warren Patterson, head of commodities strategy at ING Group NV, said, “Crude continues to be supported by broader concerns over tightness in energy markets. Demand is looking as though it will be stronger than expected in the near term.”
A slew of market observers have predicted greater price hikes as we approach the fourth quarter and the start of the northern hemisphere winter. Goldman Sachs Group Inc., for example, said the market imbalance was greater than expected, raising its year-end Brent projection by $10 to $90 per barrel. According to a commodities outlook, Citigroup Inc. remains “outright bullish” on crude oil and gas.
Natural gas futures in the United States climbed for a third day on Monday, as inventory levels remained low ahead of the heating season. OPEC+ will meet on October 4 to evaluate output strategy after sticking to 400,000 barrels per day supply increases in recent months. OPEC will release its annual World Oil Outlook on Tuesday, ahead of the meeting. The width of key market timespreads has grown, indicating that traders are more optimistic. Brent immediate spread was 89 cents a barrel in backwardation, a bullish pattern characterised by near-dated prices exceeding those further out.