Oil up as industries switch from gas, little sign supply crunch easing
Send a link to a friend
[October 08, 2021] By
Sonali Paul and Roslan Khasawneh
SINGAPORE (Reuters) -Oil prices rose on
Friday, and were on track for gains of nearly 5% this week, on signs
some industries have begun switching fuel from high-priced gas to oil
and on doubts the U.S. government would release oil from its strategic
reserves for now.
"A lot of catalysts are out there to keep the oil market tight," said
Edward Moya, a senior market analyst at brokerage OANDA. Moya pointed to
signs of improved fuel demand as economic activity rebounds and
coronavirus restrictions ease, as well as fears that a cold winter will
further strain gas supplies.
Expectations are high "that nothing in the immediate future will change
the significant supply/demand deficit that is in place", said Moya.
Brent crude futures jumped $1.07, or 1.3%, to $83.02 a barrel by 0643
GMT while U.S. West Texas Intermediate (WTI) crude futures rose $1.11,
or 1.4%, to $79.41 a barrel.
Earlier in the week, WTI touched a near seven-year high of $79.78, while
Brent hit a three-year high of $83.47.
Oil prices rose on Thursday after a Bloomberg reporter said in a Twitter
post that the U.S. Department of Energy (DOE) is not considering tapping
into its emergency reserves "at this time," nor pursuing a ban on oil
exports
But a DOE source told Reuters that was "not accurate", adding that all
"tools are always on the table" to tackle tight energy supply
conditions.
"Another run-up in prices...could reignite the conversation about
whether to take such action (SPR releases) to mitigate rising energy
prices," RBC Capital Markets analysts said in a note on Friday.
[to top of second column] |
Crude oil storage tanks are seen from above at the Cushing oil hub,
in Cushing, Oklahoma, March 24, 2016. REUTERS/Nick Oxford/File Photo
Overall, the week's run-up has been spurred by soaring gas prices, which have
encouraged a switch to oil for power generation, and a decision by the
Organization of Petroleum Exporting Countries and allies led by Russia to stick
to plans to add only 400,000 barrels per day of supply in November.
Analysts said the surge in gas prices and the extent of fuel switching from gas
to oil would be the key factor to watch now.
"An acceleration in gas-to-oil switching could boost crude oil demand used to
generate power this coming northern hemisphere winter," an ANZ commodities
analyst said in a note, adding that U.S. distillate stocks, which include diesel
and heating oil, are at their lowest heading into winter since 2000.
ANZ revised up its fourth quarter 2021 crude oil demand forecast by 450,000
barrels per day (bpd).
JP Morgan analysts noted that they have yet to hear of significant gas-to-oil
switching in the European power sector.
"This means that our estimate of 750,000 bpd of gas-to-oil switching demand
under normal winter conditions could be significantly overstated," JP Morgan
analysts said in a note.
(Reporting by Roslan Khasawneh in Singapore and Sonali Paul in Melbourne;
Editing by Simon Cameron-Moore, Robert Birsel and Ana Nicolaci da Costa)
[© 2021 Thomson Reuters. All rights
reserved.] Copyright 2021 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content. |