Oil futures rose Tuesday, with the front-month contract for Brent crude tapping highs above $80 a barrel, as supply outages and underlying demand propel prices to three-year highs.
Natural-gas prices also continued to soar to the highest prices in at least seven years amid tight U.S. supplies.
For oil, “it is only now that the market is feeling the supply damage the COVID-19 pandemic brought, as production capacity destruction was hidden behind the veil of the damaged demand, until recently,” said Louise Dickson, senior oil markets analyst at Rystad Energy, in a daily note. “The more than $10 per barrel upswing in Brent this month is a result of the imbalance between the returning demand and the tight supply.”
November Brent crude rose 13 cents, or 0.2%, to $79.66 a barrel on ICE Futures Europe after trading as high as $80.75. December Brent, the most actively traded contract, was up 22 cents, or 0.3%, at $78.94 a barrel.
November West Texas Intermediate crude, the U.S. benchmark, rose 21 cents, or 0.3%, to $75.66a barrel on the New York Mercantile Exchange.
Both front-month contracts for WTI and Brent crude looked likely to mark more settlements at their highest since October 2018.
Prices, however, traded below the day’s highs, even briefly turning lower shortly after a reading on U.S. consumer confidence for September from the Conference Board revealed a decline to 109.3 in September, the lowest in seven months.
Concerns about tightening supplies are evident in spreads between nearby and later-dated futures contracts. A growing premium for nearby contracts, known as backwardation, reflects demand for available barrels. The premium for December 2021 Brent crude over the December 2022 contract had risen to as much as $7 a barrel versus $4 in August, noted Warren Patterson, head of commodities strategy at ING, in a note.
“A growing backwardation along the curve reinforces the view of a tightening market,” he said.
Crude has found support, in part, from outages in the Gulf of Mexico. Producers were slow to restore production after Hurricane Ida, which made landfall on the Louisiana coast in late August, damaged offshore platforms and infrastructure.
Meanwhile, reports have indicated that the Organization of the Petroleum Exporting Countries and its allies have struggled to boost production after previously agreeing to relax production curbs in monthly increments beginning in August.
“OPEC+ is under growing pressure therefore to expand its oil supply to a greater extent so as to alleviate the tight supply. One opportunity to do this will come next week when the OPEC+ oil ministers take decisions about future production,” said Carsten Fritsch, analyst at Commerzbank, in a note.
The stakes could prove high, analysts said.
“All eyes are now on OPEC. The cartel will meet next week and the sword hanging over oil prices is whether it will react to the unfolding energy crisis by opening its supply taps even wider,” said Marios Hadjikyriacos, senior investment analyst at XM, in a note.
“If not, panic-buying could kick into higher gear,” the analyst said.
In an annual report released Tuesday, OPEC said demand for energy has strengthened in the wake of last year’s pandemic-related drop and will continue to rise in the long term, led by renewable energy sources, but coal is likely to see demand decline from 2020 to 2045.
Natural-gas prices, meanwhile, extended a surge, with the November contract jumping more than 4% to $5.936 per million British thermal units on Nymex after touching a high of $6.28.
Soaring natural-gas prices in Europe are leading to fears of a broader energy crisis. On Tuesday, Dutch TTF gas futures jumped 11%, while the U.K. natural gas contract rose 12%. Meanwhile, rising coal prices have been blamed for factory shutdowns in China.
Rounding out action on Nymex, October gasoline tacked on 0.1% to $2.226 a gallon and October heating oil rose 0.5% to $2.308 a gallon.
Traders await weekly data on U.S petroleum supplies due Wednesday from the Energy Information Administration. On average, analysts polled by S&P Global Platts expect to see a decline of 4.5 million barrels for domestic crude inventories for the week ended Sept. 24, along with a climb of 700,000 for gasoline and a fall of 2.2 million barrels for distillate stockpiles.