Crude Oil Trades Above $83 as Energy Crunch Worsens

By Adedapo Adesanya

Crude oil showed no signs of slowing down on Monday, fuelled by the rebound in global demand that has also contributed to power and gas shortages in key economies like China.

Brent crude rose by $1.53 or 1.26 per cent yesterday to trade at $83.65 per barrel and the US West Texas Intermediate (WTI) crude appreciated by $1.52 or 1.21 per cent to sell at $80.56 per barrel.

The week opened with the black gold extending the rally from last week, which saw the US benchmark topping the $80 per barrel for the first time since 2014.

China’s coal and power crisis worsened over the weekend, with coal futures in China closing at a new record high on Monday after 60 coal mines in the country’s top coal-producing region were forced to shut amid heavy rain, flooding and landslides.

According to reports, the weather-related setbacks for Chinese coal production came at a time when the world’s second-largest economy is grappling with a shortage of coal supply and a power crisis, which threaten to slow economic growth.

In Europe, the prices of natural gas rose on Monday, after the softness seen at the end of last week, following forecasts of colder weather.

Gas prices in the United Kingdom and at the Dutch TTF hub, the European gas price benchmark, were off the record highs from last week.

Experts are saying that gas prices are now trading at the equivalent of more than $200 per barrel of oil, with Europe and Asia the hardest hit, making oil look dirt-cheap in comparison despite its own impressive rally.

As a result of the tighter coal and natural gas markets globally, analysts have raised the outlook for the gas-to-oil switch, which is set to boost oil demand.

Analysts have estimated that switching from natural gas to oil could add anywhere from 250,000 to 750,000 barrels per day of crude demand.

At the same time, the Organisation of the Petroleum Exporting Countries and allies, together known as OPEC+, have held back from boosting supply even as prices have risen.

Last Monday, OPEC+ stuck to the existing plan to hike output by 400,000 barrels per day. The alliance had brought in record production cuts of about 10 million barrels per day in April 2020 but has tapered it to around 6 million per day as demand improved.