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West Texas Intermediate topped $75 a barrel after a run of five weekly gains, while Brent hit the highest level since October 2018. Inventories have been drawing, with U.S. stockpiles near a three-year low. At the same time, a rally in natural gas looks set to drive demand for oil as users switch fuels.
Oil has surged more than 80% over the past year as worldwide demand recovers from the disruption caused by the pandemic. On the supply side, the Organization of Petroleum Exporting Countries and its allies including Russia have been easing output curbs only slowly, permitting markets to tighten. In addition, extreme weather in the U.S. has crimped local production.
Crude “continues to be supported by broader concerns over tightness in energy markets,” said Warren Patterson, head of commodities strategy at ING Groep NV. “Demand is looking as though it will be stronger than expected in the near term. While clearly, with supply losses from Hurricane Ida now exceeding 30 million barrels, the market is quite a bit tighter than anticipated.”
On the threshold of the fourth quarter and onset of the northern hemisphere winter, a host of market watchers have flagged further gains in prices. Among them, Goldman Sachs Group Inc. said the market’s deficit was larger than expected, and raised its year-end Brent forecast by $10 to $90 a barrel.
Citigroup Inc. said it remained “outright bullish” on crude oil as well as gas, according to a commodities outlook. On Monday, U.S. natural gas futures rose for a third day as inventory levels remain low ahead of the heating season.
Key oil market timespreads have been widening, suggesting traders are increasingly positive about the outlook. Brent’s prompt spread was 86 cents a barrel in backwardation, a bullish pattern with near-dated prices above those further out. The gap between Brent’s two nearest December contracts has expanded to more than $7 a barrel.
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Read More: Crude Oil Extends Rally as WTI Tops $75 on Global Energy Crunch