Oil prices hit their highest level in years yesterday as gas-to-oil switching and demand recovers from the COVID-19 pandemic. This is as power generators are turning away from expensive gas and coal to fuel oil and diesel.
Consequently. Brent crude oil futures rose 63 cents, or 0.7 per cent to $85.49 a barrel after hitting a session-high of $86.04, the highest price since October 2018.
U.S. West Texas Intermediate (WTI) crude futures climbed 95 cents, or 1.2 per cent to $83.23 a barrel, after hitting a session-high of $83.73, highest since October 2014.
Both contracts rose by at least three per cent last week.
“Easing restrictions around the world are likely to help the recovery in fuel consumption,” analysts from ANZ bank said in a note on Monday, adding that gas-to-oil switching for power generation alone could boost demand by as much as 450,000 barrels per day in the fourth quarter.
Cold temperatures in the northern hemisphere are also expected to worsen an oil supply deficit, said Edward Moya, senior analyst at OANDA.
“The oil market deficit seems poised to get worse as the energy crunch will intensify as the weather in the north has already started to get colder,” he said.
“As coal, electricity, and natural gas shortages lead to additional demand for crude, it appears that won’t be accompanied by significantly extra barrels from OPEC+ or the U.S.,” he added.
