The global crude benchmark advanced 0.6%, while West Texas Intermediate hit the highest since 2014. Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman told Bloomberg Television at the weekend that producers shouldn’t take the rise in prices for granted. That conservative stance was echoed by both Nigeria and Azerbaijan.
The strengthening in prices has been outpaced by an even faster rally in so-called timespreads, which gauge the health of the market. WTI for immediate delivery was trading at more than a dollar higher than the next month as traders pay premium prices to secure supplies. The closely watched spread between the nearest two December contracts was the strongest since 2013.
Oil has more than doubled over the past 12 months, fanning inflationary concerns, as the global economy rebounded from the dislocation caused by the coronavirus pandemic. Goldman Sachs says the natural gas crisis is boosting demand by 1 million barrels a day and that global oil consumption is on the brink of returning to pre-Covid levels. Meanwhile, the Organization of Petroleum Exporting Countries and its allies have been restrained in easing the draconian supply cuts imposed in 2020 to salvage prices.
“Continuous global stock drawdowns are still widely anticipated in the coming months and only a dent in demand growth could change the underlying sentiment,” Tamas Varga, an analyst at brokerage PVM Oil Associates.
Prince Abdulaziz said that demand may increase 500,000-600,000 barrels a day if the Northern Hemisphere’s winter is colder than normal and companies switch from gas to crude, he also cautioned that more barrels from OPEC+ would do little to curb costs of gas in Europe and Asia or gasoline in the U.S.
Still, in a sign the pandemic remains a challenge, China has been dealing with a renewed Covid-19 outbreak caused by the delta variant from overseas. A wave of infections has spread to 11 provinces in the week from Oct. 17, Mi Feng, spokesman for the National Health Commission, told a briefing.
For now, however, the strength in the oil market is being dominated by a relative scarcity of so-called light-sweet barrels, which are low in sulfur and produce more lighter products like gasoline. Brent’s premium to the middle eastern Dubai benchmark is the biggest since 2018, which could spur buyers in Asia to shun European crude purchases. At the same time, WTI is pricing at its smallest discount to Brent since July, a move that’s likely to curb U.S. export flows to Europe.