Oil prices shot up on Thursday, reversing preceding losses, as expectations regarding high natural gas prices leading to a switch to oil during winters arose. The demand for heating will rise further during winters which is expected to lead to the need for replacing the already scarce natural gas with oil.
Brent crude futures rose by 28 cents, or 0.3%, to touch $83.46 a barrel at 0107 GMT following a drop of 0.3% on Wednesday.
U.S. West Texas Intermediate (WTI) crude futures also jumped 22 cents, or 0.3%, to $80.66 a barrel, after falling 0.3% during the previous session.
General manager of research at Nissan Securities Hiroyuki Kikukawa said, “Investors bet that surging gas prices will encourage power generators to switch to oil as winter demand season is approaching.”
The change in prices has come about in the midst of concerns revolving around supply constraints triggered by the announcement of the US Energy Information Administration (EIA) on Wednesday. EIA said that crude oil output in the US—the world’s biggest producer— in 2021 will decline more than was forecast but it will bounce back in the coming year.
Kikukawa said, “The current tightness in the crude market and near-term outlook for seasonal demand increases lent support to investors’ sentiment, outweighing a bigger-than-expected build in the U.S. crude inventories and weaker demand forecast by OPEC”.
The American Petroleum Institute (API) said on Wednesday that US crude stockpiles increased by 5.2 million barrels during the week ending on Oct. 8.
The API also reported gasoline inventories dropping by 4.6 million barrels and distillate stocks falling by 2.7 million barrels.
A Reuters poll showed that analysts expect crude inventories to increase by 700,000 barrels.
The Organization of the Petroleum Exporting Countries (OPEC) pared its world oil demand growth forecast for 2021 while maintaining the forecasted figure of 2022 in its monthly report on Wednesday.
OPEC said rising natural gas prices could potentially boost demand for oil products as end consumers switch fuels.
The EIA will be releasing its inventory report later on Thursday at 11 a.m. EDT.