Oil Heading for Seventh Weekly Gain on Global Energy Squeeze By Bloomberg
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(Bloomberg). — The seventh week of oil gains was the longest since December. This is because of a worldwide energy shortage that roiled markets all over the world, from Europe and Asia.
Futures prices in New York increased gains in Asian trading by nearly $79 per barrel. Prices advanced 1.1% on Thursday after the U.S. Energy Department said that it had no plans “at this time” to tap the nation’s oil reserves. The remarks were made the previous day by energy secretary, who said that the release of strategic stockspiles would be considered in order to combat rising gasoline prices.
Crude prices rose to their highest levels since 2014. This week’s rally was due to OPEC+ insisting on a gradual increase in supply in the next month despite a fast tightening market. Russia’s offer to ease the gas crunch in Europe, and a Financial Times report that the U.S. would consider releasing reserves saw prices tumble more than 3% on Thursday before reversing those losses.
Before rising oil prices and the economic recovery following the pandemic, tightening of the market had occurred before the rise in oil prices led to increased demand for products such as diesel or fuel oil. This squeeze is being made worse by rising coal prices.
“Stronger demand amid the energy crunch is still likely to be the main driver of prices for the time being,” said Daniel Hynes, senior commodity strategist at Australia and New Zealand Banking Group. “We expect inventories to continue to be drawn down, with a rebound in economic activity exacerbated by gas-to-oil switching leading into winter. That should push oil prices even higher.”
Russia offers some relief to Europe through increased natural gas flow, but China still faces power outages. Beijing ordered state-owned companies to ensure that winter energy supply is secure at all cost. After a one-week national holiday, Chinese oil futures rose almost 10% Friday. However, the crisis is giving some a lift.
Indian refiners have been increasing their operating rates to full capacity due to the rebound in domestic consumption as well as an energy crunch. This is driving demand for diesel. People familiar with the situation say that most state-owned businesses plan to have their refineries running at full capacity in January.
©2021 Bloomberg L.P.
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