Oil prices hit fresh high on forecasts of supply deficit

Energy crunch is expected to boost demand by 500,000 barrels a day

Oil prices hit a fresh three-year high on Friday, climbing above $85 a barrel on forecasts of a supply deficit over the next few months as rocketing gas and coal prices stoke a switch to oil products.

Brent crude futures were up 80c, or 0.95%, to $84.80 a barrel. Front-month prices, which earlier touched their highest since October 2018 at $85.10, climbed for the sixth straight week.

US West Texas Intermediate (WTI) crude futures rose 73c, or 0.9%, to $82.04 a barrel. The contract gained 3.3% on the week, up for the eighth consecutive week.

Strong stock markets on both sides of the Atlantic, often traced by oil prices, also gave a boost.

Analysts pointed to a sharp drop in Organisation for Economic Co-operation and Development (OECD) oil stockpiles to their lowest level since 2015.

BOOST

Demand has picked up with the recovery from the Covid-19 pandemic, with a further boost coming from industry turning away from expensive gas and coal to fuel oil and diesel for power.

“The fact that Asian markets are content to chase prices higher at weekly highs, instead of lurking on price dips, is a strong signal that energy demand remains robust,” Oanda senior analyst Jeffrey Halley said in a note.

The International Energy Agency on Thursday said the energy crunch is expected to boost oil demand by 500,000 barrels a day.

That would result in a supply gap of about 700,000 barrels a day through the end of this year, until oil cartel Opec and allies, together called Opec+, add more supply, as planned in January.

“We maintain the view that we have held all year — that the oil market remains in the early days of a multiyear, structurally strong cycle,” RBC analyst Michael Tran said in a note.

Investors shrugged off a higher-than-expected gain in US crude stocks last week as refinery crude runs fell. /Reuters

WE MAINTAIN THE VIEW THAT THE OIL MARKET REMAINS IN THE EARLY DAYS OF A MULTIYEAR, STRUCTURALLY STRONG CYCLE Michael Tran RBC analyst