Oil rises above $80 for first time in 3 years

Published On: September 29, 2021Categories: Alternative Investments2.8 min read

Brent, the international benchmark, gained 0.9 per cent to $80.22 a barrel on Tuesday morning, hitting a three-year high for the second day in a row

Coal, carbon and European gas prices have all hit record highs as crude oil pushed above $80 a barrel.

Brent, the international benchmark, gained 0.9 per cent to $80.22 a barrel on Tuesday morning, hitting a three-year high for the second day in a row and bringing crude’s gains for the year to date (YTD) to nearly 55 per cent.

European benchmark gas prices for delivery next month jumped another 10 per cent, meaning that costs have doubled since the middle of August, while the price of offsetting carbon emissions, through contracts known as offsets, continued to rise, pushing further past 65 euros ($75.97) a tonne in intraday trading on Tuesday.

We’re looking at not just the UK and Europe but a potential global energy crisis coming into the winter, said Robert Rennie, global head of market strategy at Westpac.

US natural gas prices soared by 10 per cent to over $6 per million British thermal units, their highest price in seven years, before retreating on the back of forecasts for warmer-than-expected weather and less demand in the next few weeks. By early afternoon in New York, the front-month contract, due to expire on Tuesday, was up just 1 per cent to $5.77/mBtu.

Analysts said that the soaring price, with the front-month contract up almost 200 per cent in a year, was the result of less drilling by US shale producers, supply disruption following hurricanes in the Gulf of Mexico and fast-rising demand, which left stored natural gas stocks well below the five-year average.

The price could go much higher if the weather is as cool this winter as some people predict, said Andrew Gillick at energy consultancy Enverus.

The broad rally in energy markets comes amid constrained supply and growing competition between Europe and China, which has pushed gas prices to record levels in recent weeks.

The combination of soaring thermal coal prices, which are up 96 per cent in China this year, and central government targets to reduce carbon emissions has increased Chinese demand for shipments of liquefied natural gas as a cleaner option to coal-fired power.

Chinese authorities’ clean-energy drive, part of an effort to stave off an annual choking haze as Beijing prepares to host the Winter Olympics in February, has contributed to its own power crunch, leading to widespread outages that have disrupted factory activity and left many homes without power in the country’s north-east.

Record gas prices because of a shortfall in global production are now feeding back into oil markets and expected to push crude higher as some industries shift to using oil to generate power.

In China, crude futures in Shanghai are up 27 per cent from a low touched in late August, forcing Beijing this month to announce its first public auction of state petroleum reserves to domestic refiners.

Given that US crude inventory levels are well below average ahead of the end-of-year peak consumption period, Westpac’s Rennie predicted that oil could even face a worldwide shortage, as countries further eased coronavirus-related travel restrictions.

Throw on top of that power outages in China and concerns about levels of inventory around the world, and it’s understandable that we’re seeing upward pressure on crude, Rennie said.

The three-year high for oil prices came as Opec, the oil cartel, forecast that global demand for crude would exceed 2019 levels in 2023 and continue to rise until 2035 before plateauing.

Energy and oil demand have picked up significantly in 2021, after the massive drop in 2020, and continued expansion is forecast for the longer term, Mohammed Barkindo, Opec secretary-general, wrote in the foreword to group’s annual oil outlook report.

About the Author: Jonathan Adams

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