Energy crisis boosted demand, U.S. oil continued to hit a seven-year high and closed above US$80

On Monday (October 11), US oil futures rose 1.17 US dollars, or 1.5%, and settled at 80.52 US dollars per barrel. The intraday touched the highest since the end of 2014 at 82.18 US dollars. Burundi oil rose 1.26 US dollars, or 1.5%, to close at 83.65 US dollars per barrel, the highest level since October 2018. The power crisis from Europe to Asia is getting worse. At the same time, the winter in the northern hemisphere is approaching, and global coal and natural gas inventories have soared prices, prompting some companies to switch to diesel and fuel oil and other petroleum products to promote oil demand.

The price structure of the oil market is flashing bullish signals. The spread between the West Texas Intermediate (WTI) futures contract for immediate delivery and the contract for delivery one month later has soared to the largest in more than two years, indicating that Cushing, Oklahoma Crude oil inventories are expected to shrink. The above contract spread usually fluctuates only a few cents a day, but it rose by 54 cents early on Monday, and the total spread reached a maximum of 1.13 US dollars per barrel, the first time since September 2019. As investors expect inventory tightening, the The spread may widen further.

Gary Ross, a former senior consultant in the petroleum industry and hedge fund manager of Black Gold Investors LLC, said that Cushing is the only place where there is a surplus of crude oil, which will soon be pulled away.

Fiona Cincotta, a senior financial market analyst at City Index, said that the market must be worried about supply depletion. Even if the Organization of the Petroleum Exporting Countries (OPEC) increases market supply back, it may not have a huge restraint on oil prices. The oil price of $90 is clearly imminent.

Affected by widespread energy shortages in Asia, Europe and the United States, electricity prices have surged to record highs in recent weeks. The soaring natural gas prices have prompted power plants to switch to oil for power generation. As the energy crisis intensified, crude oil futures have risen about 20% since mid-August. Saudi Aramco estimates that the shortage of natural gas has increased oil demand by approximately 500,000 barrels per day, and Citigroup estimates that it may reach 1 million barrels per day.

Matt Smith, Chief Petroleum Analyst at Kpler, said: “As demand seems to be picking up sharply, everything is focused on the issue of insufficient supply recovery. Considering that the global natural gas price is so high, there are additional factors in the potential for fuel conversion, so this is The combined effect of a series of factors continues to push oil prices up."

The pace of economic recovery from the epidemic has boosted energy demand. At this time, oil production has slowed due to the reduction of oil-producing countries during the epidemic, the focus of oil companies on dividends, and the pressure of the government to transition to clean energy. A US government official said on Monday that the White House continues to reiterate its call for "more action" on oil-producing countries and is closely monitoring oil and gasoline prices.

Daniel Yergin, vice chairman of IHS Markit, said that if oil prices continue to rise, the United States may urge OPEC to increase production to ease oil prices. In the past few months, the White House has been communicating this with OPEC. Supply and demand factors mean that the crude oil market still has room to rise, or it may not last forever. At a time when high oil prices seriously affect demand and global economic recovery, the combination of OPEC's response and demand-related pain thresholds will cause oil prices to peak.

(4 hours chart of US Oil)