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Global oil prices recorded gains and might increase more as conditions such as COVID recovery and demand favor price growth.
Global oil prices extended pre-weekend gains on Monday to multi-year highs due to tight global supply. In addition, prices also rose into the week as there is strong demand for fuel in the United States and other countries as the negative effects of the COVID pandemic are starting to wear off.
Brent crude futures were up by 81 cents, or 1%, to $86.34 a barrel, serving as a consolidation of last Friday’s 1.1% gain. The price crested at $86.43 earlier on Monday – its highest level since October 2018.
Furthermore, NYMEX light sweet crude contract was up 84 cents at $84.60 per barrel, with the US West Texas Intermediate (WTI) crude futures rising 86 cents, or 1%, to $84.62. WTI had earlier gained 1.5% on Friday and hit $84.76 earlier on Monday – its highest point since October 2014. Brent and WTI benchmarks ended last week with gains amid increasing coronavirus cases in the UK and Eastern Europe. This points to a possibly difficult winter period ahead.
Speaking on gains in oil prices in a note issued today, IG Marketing Strategist Yeap Jun Rong said:
“The upward momentum in oil prices also finds a continuation above $85 underpinned by comments from Saudi Arabia that suggest OPEC+ should maintain its cautiousness in managing supplies.”
Back in June, OPEC+ caused oil prices to surge after agreeing to boost production. Market participants are now gearing up for the next OPEC+ meeting meant to take place on November 4th. This is to review production decisions for December.
Majority of the Predictions for Oil Prices Favor Added Growth
According to Goldman Sachs, a strong rebound in global demand for oil could push Brent crude prices even higher. In fact, the American investment bank thinks Brent crude may very well surpass its year-end forecast of $90 a barrel. Goldman Sachs further estimates that gas-to-oil switching could contribute at least 1 million barrels per day to oil demand.
Energy services company Baker Hughes Co. reported on Friday that US energy firms recently cut oil and natural gas rigs. This occurrence marks the first time in seven weeks, even in the face of rising oil prices.
The United States is the largest consumer of fuel and its liquid derivatives across the globe. After over a year of suppressed fuel demand, gasoline and distillate consumption is back on par with five-year averages in the country.
Furthermore, oil prices also received a boost by concerns over coal and gas shortages in China, India, and Europe. This subsequently facilitated fuel switching to diesel and fuel oil for power. However, risks related to demand recovery abound. For instance, there are some concerns that COVID cases flare-ups could spark renewed lockdown measures that dampen recovery prospects. An example is Russia’s announcement of a week-long lockdown from October 30th to November 7th.