Oil rallied at the start of the week’s trading on Monday amidst signs that the crude market is tightening under the weight of a global energy crunch.
Brent, the international benchmark crude that mirrors Bonny Light traded above $79.52 a barrel in early trading but Nigeria, Africa’s biggest oil producer is struggling to meet up its OPEC supply quarter because of years of a slowdown in investment.
West Texas Intermediate topped $75 a barrel after a run of five weekly gains, while Brent hit the highest level since October 2018. Inventories have been drawing, with U.S. stockpiles near a three-year low. At the same time, a rally in natural gas looks set to drive demand for oil as users switch fuels.
Nigeria, a country of 210 million people faces both a revenue crunch and a debilitating foreign exchange shortage but failure to produce more oil means that the local currency the Naira remains under severe pressure despite the surge in International oil prices.
Oil has risen more than 80% over the past year as worldwide demand recovers from the disruption caused by the pandemic. On the supply side, the Organization of Petroleum Exporting Countries and its allies including Russia have been easing output curbs only slowly, permitting markets to tighten. In addition, extreme weather in the U.S. has crimped local production.
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Crude “continues to be supported by broader concerns over tightness in energy markets,” said Warren Patterson, head of commodities strategy at ING Groep NV. “Demand is looking as though it will be stronger than expected in the near term.”
On the threshold of the fourth quarter and onset of the northern hemisphere winter, a host of market watchers have flagged further gains in prices. Among them, Goldman Sachs Group Inc. said the market’s deficit was larger than expected, and raised its year-end Brent forecast by $10 to $90 a barrel.
Citigroup Inc. said it remained “outright bullish” on crude oil as well as gas, according to a commodities outlook. On Monday, U.S. natural gas futures rose for a third day as inventory levels stayed low ahead of the heating season.
OPEC+ is scheduled to meet on Oct. 4. to review output policy after sticking with supply increases of 400,000 a day for recent months. Ahead of that, OPEC itself is due to release the group’s annual World Oil Outlook on Tuesday.
“If prices continue to trend higher between now and the meeting, I would not rule out the potential for even more aggressive easing,” Patterson said.
Key market time spreads have widened, suggesting traders are more positive. Brent’s prompt spread was 89 cents a barrel in backwardation, a bullish pattern with near-dated prices above those further out. The gap between the two nearest December contracts has expanded to more than $7 a barrel.
