Brent crude oil hits $86.34 a barrel, 7-year high

Oil futures rose Monday, hitting another round of multiyear highs as investors focused on tight supply, while crude producer Saudi Arabia appeared reluctant to further loosen the taps in response to soaring crude prices. Meanwhile, prices for natural-gas futures surged up by more than 9% on the back of forecasts for colder weather in early November. “The global energy supply crunch continues to show its teeth, as oil prices extend their upward march this week, a result of traders pricing in the ongoing rise in fuel demand — which amid limited supply response is depleting global stockpiles,” said Louise Dickson, senior oil markets analyst at Rystad Energy, in a Monday note. “The relative calamity of Covid-19 and return to normalised mobility amid an energy crunch are bullish factors that have amplified to the extreme.”

She said that the “upside risk to crude is real and a brief spike to $100 is not out of the question,” in the short term, as oil “becomes a viable substitute for heating and power, particularly in Asia.” West Texas Intermediate crude for December delivery  rose 90 cents, or 1.1%, to $84.66 a barrel on the New York Mercantile Exchange after touching a high of $85.41. Based on the front-month contracts, prices touched their highest intraday level since October 2014. WTI has seen nine consecutive weekly gains, based on front-month contracts — the longest streak ever for front-month contracts, according to data going back to 1983 compiled by Dow Jones Market Data. December Brent crude, the global benchmark, was up 81 cents, or 1%, at $86.34 a barrel on ICE Futures Europe. January Brent , the most actively traded contract, was down 7 cents, or nearly 0.1%, at $85.46 a barrel. 

Spreads continued to tell the tale of tightening U.S. supplies. WTI’s discount to Brent has narrowed from around $4 a barrel earlier this month to around $1.50, noted Warren Patterson, head of commodities strategy at ING, in a note. Meanwhile, oil inventories at Cushing, Okla., the delivery hub for Nymex crude futures, continue to decline and stand near 30 million barrels, he said. Analysts have noted the sharp backwardation — when nearby contracts trade at a premium to deferred contracts — in WTI futures. Patterson noted the “prompt” WTI spread — December futures versus January — stands at more than $1.40, the strongest since 2018 when Cushing inventories fell to less than 22 million barrels. A continuation of the trend would likely start to begin weighing on U.S. crude exports, he said. Remarks over the weekend by Saudi Arabia’s energy minister were taken as a sign that the Organization of the Petroleum Exporting Countries and its allies — a group known as OPEC+ — has little appetite for further boosting output. The remarks by Prince Abdulaziz bin Salman underlined concerns the COVID-19 impact could still undercut demand in the near term.

“We are not yet out of the woods,” he told Bloomberg Television on Saturday. “We need to be careful. The crisis is contained but is not necessarily over.” Among other Nymex-traded energy futures, November gasoline tacked on 2% to $2.532 a gallon and November heating oil added 1.2% to $2.57 a gallon. November natural gas, which expires at the end of Wednesday’s trading session, traded at $5.763 per million British thermal units, up 9.2%. After nearly an entire month of above-normal temperatures, the National Oceanic and Atmospheric Administration predicts colder-than-normal conditions for most of the Southeast and Midwest during the first week of November, which will “likely boost domestic heating demand over the period,” said Christin Redmond, commodity analyst at Schneider Electric, in a daily note. Last week, NOAA also released its 2021-2022 Winter Outlook, predicting a La Niña event for a second year in a row.

“This is expected to bring above-normal temperatures for the southern and eastern US, but below-normal temperatures for the Pacific Northwest, which should net out to a warmer-than-normal winter overall,” said Redmond. “The forecast also predicts a continuation of severe drought conditions for the western U.S., which may cause the region to continue to rely more heavily on [natural] gas-fired power generation, as hydroelectric availability remains challenged.”

MarketWatch