Oil prices keep rallying to multi-year high records as global supply might remain tight until the end of the year. Forecasts of a deficit in supply pushed prices this Friday beyond $85 per barrel. However, it closed slightly below, still with a six-week gain.
Firstly, Brent crude futures settled up 86 cents, 1%, at $84.86 a barrel, according to Reuters. Front-month prices, which touched their highest level since October 2018 at $85.10, hit a weekly rise of 3%. Its sixth straight weekly gain.
On the other hand, the US mix, the West Texas Intermediate futures rose 97 cents, or 1.2%, to $82.28 a barrel. It was up 3.5% on the week in an eighth consecutive weekly rise.
According to analysis, the oil prices rally would be hard to derail. A number of factors are contributing to its behavior. In the first place, demand has picked up with the recovery from the Covid-19 pandemic. A further boost to prices comes from the energy crisis in Europe, as increasing natural gas prices are pushing power producers to turn to oil.
Secondly, The White House said it would lift COVID-19 travel restrictions for fully vaccinated foreign nationals effective Nov. 8, which should boost jet fuel demand. At the same time, The US reported a sharp drop in oil stockpiles as its recovering from the hurricane season and a severe outage due to upstream and midstream damages.
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Oil prices to remain high unless a trifecta of events unfolds
As a result, both the US and member countries of the Organization of Economic Co-operation and Development are expected to keep global supply tight. According to Edward Moya, senior market analyst at OANDA, it will take a trifecta of events to derail the rally. “OPEC+ unexpectedly boosting demand, warm weather hitting the Northern Hemisphere, and if the Biden administration taps the strategic petroleum reserves.”
On the other hand, US energy firms this week added oil and natural gas rigs for a sixth week in a row. Soaring crude oil prices prompted drillers to return to the field. In addition, the oil and gas rig count is an industry barometer, as higher drilling activity creates more demand for upstream services.
Furthermore, it is also an early indicator of future output. This week’s count rose by 10 to a total of 543, its highest since April 2020.
Finally, the International Energy Agency on Thursday said the energy crunch is expected to boost oil demand by 500,000 barrels per day. That would result in a supply gap of around 700,000 bpd through the end of this year until OPEC+ supplies more in January.
