By Adedapo Adesanya
Oil prices hit their highest level in years on Monday as demand recovers from the COVID-19 pandemic, boosted by more custom from power generators turning away from expensive gas and coal to fuel oil and diesel.
Brent crude oil futures closed 59 cents or 0.7 per cent higher at $85.45 a barrel after hitting $86.04 earlier in the day, their highest level since October 2018.
The United States West Texas Intermediate (WTI) crude futures climbed 90 cents or 1.1 per cent to $83.18 a barrel, after hitting $83.73, their highest since October 2014.
This showed a perfect start to the week after both contracts rose by at least 3 per cent last week.
The bullishness comes as shortages of natural gas and coal from Asia to Europe are driving additional demand for oil products in power generation.
This is also coming at a time when key economies are rebounding from the pandemic, leading to a significant tightening of the market.
Market analysts noted that gas-to-oil switching for power generation alone could boost demand by as much as 450,000 barrels per day in the fourth quarter.
With winter coming, cold temperatures in the northern hemisphere are also expected to worsen the current oil supply deficit.
Prices are expected to climb as the energy crisis, particularly coal, electricity and natural gas shortages will lead to additional demand for crude, a need that won’t be accompanied by significantly extra barrels from the Organisation of the Petroleum Exporting Countries and allies (OPEC+).
The Saudi-Russia coalition decided for yet another month to stick to its 400,000 barrels per day added to the market despite projections showing that there was a need for double of that.
Meanwhile, higher prices could mean that supply may increase from the US, where energy firms last week added oil and natural gas rigs for a sixth week in a row as soaring crude prices prompted drillers to return to the well pad.
Also, China’s economy grew at the slowest pace in a year in the third quarter, hurt by power shortages in September forcing factories to curb output or shut completely.
Data showed that a daily crude processing rate fell to the lowest since May 2020 in September in the world’s second-largest oil consumer, as feedstock shortage and environmental inspection crippled operations at refineries, while independent refiners faced tightening import quotas for crude oil.
