Oil prices continued to extend their pre-weekend gains on Monday to hit multi-year highs. The development is down to tight global supply and strengthening fuel demand in the US and beyond as economies recover from pandemic-induced slumps.
Brent crude futures rose by $0.97, or 1.1%, to $86.50 a barrel by 1225 GMT, the highest since October 2018. Meanwhile, the US West Texas Intermediate (WTI) crude futures rose $1.29, or 1.5%, to $85.05 and reached their highest level since October 2014.
Both benchmarks closed last week with slight gains despite rising coronavirus cases in the United Kingdom and Eastern Europe, signalling a potentially difficult winter ahead.
Brent crude could surpass $90 per barrel
An oil analyst at London brokerage PVM Oil Associates Tamas Varga said, “It seems that continuous global stock drawdowns are still widely anticipated in coming months and only a dent in demand growth could change the underlying sentiment.”
Elsewhere, Goldman Sachs said that a strong rebound in global oil demand could push Brent crude prices above its year-end forecast of $90 a barrel. The bank estimated gas-to-oil switching could contribute at least 1 million barrels per day (BPD) to oil demand.
After more than a year of depressed fuel demand, gasoline and distillate consumption is back in line with five-year averages in the US, the world’s largest fuel consumer.
Meanwhile, energy services firm Baker Hughes said on Friday that last week US energy companies cut oil and natural gas rigs for the first time in seven weeks even as oil prices rose.
The US Commodity Futures Trading Commission (CFTC) commented that money managers raised their net long US crude futures and options positions in the week to October 19, underlining strong market sentiment.
Oil prices have also been bolstered by worries over coal and gas shortages in China, India and Europe, which spurred fuel switching to diesel and fuel oil for power.