The U.S benchmark, the West Texas Intermediate (WTI), has broken through the $80 resistance zone, to currently stand at $81.30, a seven-year high, on the back of a global energy crisis hindering the progress of major economies and showing no signs of easing as a result of an uptick in economic activities and restrained supplies from major producers.
The global benchmark, the Brent crude is up 1.94%, currently trading $84.00 a barrel, after gaining nearly 4% last week.
The U.S. oil, the WTI, is up 2.35%, currently trading $81.30 a barrel, the highest since late 2014. WTI crude rose 4.6% through Friday.
Global energy crisis
Oil prices have risen as vaccination efforts have brought nations out of coronavirus lockdowns, supporting a revival of economic activity. This is evident due to the fact that the Brent has gained for five consecutive weeks while the U.S. crude has gained for seven.
Coal and gas prices have also been surging as economic activities return to pre-pandemic levels, making oil more attractive as a fuel for power generation, pushing crude markets higher.
In India for example, some states are experiencing electricity blackouts because of coal shortages, while in China the government has ordered miners to ramp up coal production as power prices surge.
Drillers in the United States are taking advantage of the increase in prices and added five new oil wells last week, the fifth straight weekly increase in oil and gas rigs.
Another factor contributing to the crisis is the decision of the Organization of Petroleum Exporting Countries and its allies (OPEC+) to maintain their original agreement for a steady and gradual increase in production, even after calls from top oil consumers like the United States and India to ramp up production.
What they are saying
Kelvin Wong, commodities analyst at CMC Markets in Singapore stated, “There’s no direct news flow, the moves are momentum-driven where intermarket factors implying higher expected inflation are supporting the bullish move in oil prices.”
ING Economics stated in a note, “There will be interest from the market on what demand revisions will be made, given expectations of a demand boost due to gas to oil switching.”
Commodity Futures Trading Commission (CFTC) stated on Friday that Fund managers increased their net long positions in U.S. crude futures and options in the week to Oct. 5. They stated that the speculator group increased combined futures and options position in New York and London by 8,902 contracts to 325,578 during the period.
Investors’ attention will now be on the OPEC+ monthly oil report to be released later during the week.