Oil markets take breather after five-day rally
Investors scoop up profits on concerns surging prices may reduce demand
Tokyo — Oil markets eased on Tuesday after a five-day rally as investors took profits on fears that higher prices may weaken fuel demand, though market sentiment remained firm amid tight supply.
Brent crude futures fell 17c, or 0.2%, to $79.36 a barrel at 1.21am GMT after surging 1.8% and reaching its highest since October 2018 on Monday.
US West Texas Intermediate (WTI) crude futures dropped 9c, or 0.1%, to $75.36 a barrel, having risen 2% and hitting its highest since July the previous day.
“Oil markets took a breather after a long rally, with some investors scooping up profits,” said Toshitaka Tazawa, an analyst at Fujitomi Securities, adding that there were also concerns that surging oil prices may reduce fuel demand.
“Still, the market sentiment remained strong with tighter supply,” he said, predicting that Brent may try a key $80 a barrel soon.
African oil exporters Nigeria and Angola will struggle to boost output to their Opec oil cartel quota levels until at least next year as underinvestment and nagging maintenance problems continue to hobble output, sources at their respective oil firms warn.
Their battle mirrors that of several other members of the Opec+ group who curbed production in the past year to support prices when Covid-19 hit demand, but are now failing to ramp up output to meet soaring global fuel needs as economies recover.
Boosting investors’ risk appetite, Goldman Sachs raised by $10 its year-end forecast for Brent crude to $90 a barrel. Global supplies have tightened due to the fast recovery of fuel demand from the outbreak of the Delta variant of the coronavirus and Hurricane Ida’ s hit to US production.
Analysts say climbing prices of spot liquefied natural gas (LNG) and coal may also bolster oil prices further.
“Oil demand could pick up by an additional 0.5-million barrels a day, or 0.5% of global oil supply, as high gas prices force a switch from gas to oil consumption,” Commonwealth Bank commodities analyst Vivek Dhar said in a note.
“That is set to tighten oil markets further, especially with supply additions from Opec+ remaining quite conservative,” he said, adding that energy prices could still rally from here if the winter period in the northern hemisphere proved colder than expected.
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