Oil prices rose early on Tuesday, with Brent Crude topping $80 a barrel for the first time in three years as the natural gas shortage and price spikes spill over into the crude oil futures market.
The international benchmark, Brent Crude, traded up by 0.62 per cent at $80.02—the highest level since October 2018.
The U.S. benchmark, WTI Crude, was above $76 per barrel, rising by 0.87 per cent at $76.14—the highest level since early July.
Energy commodities have rallied in recent days after the natural gas shortage in Europe went global with a ripple effect on gas, coal, and crude oil prices. The record-high natural gas and power prices in Europe are leading to additional demand for coal and oil in the power generation sector. Gas-to-oil switching could further accelerate as we go into the winter heating season in the northern hemisphere.
Last week, liquefied natural gas (LNG) prices in Asia soared by 10 per cent to at least $27 per metric million British thermal units (mmBtu), industry sources told Reuters. Despite the record prices for this time of the year, demand is strong in Asia as buyers have little choice amid tight natural gas supplies globally.
The gas crunch in Europe and Asia is also pushing the U.S. benchmark gas price, Henry Hub, higher, at above $6/mmBtu on Tuesday to the highest in over seven years.
Recovering oil demand and an underwhelming supply response, coupled with expected higher oil consumption in a gas-to-oil switch, are tightening the crude market and deepening the backwardation in the futures curve—a sign that market participants believe supply will continue to be tight.