Brent nears $85 a barrel as energy crunch boosts demand

London — Crude in London surged towards $85 a barrel as the global energy crunch boosts demand for oil ahead of winter.

Brent futures rose as much as 2.7% to the highest level since October 2018. Prices of coal and natural gas have surged in Europe and Asia with stockpiles running low before the northern hemisphere winter, prompting some switching to oil products such as diesel and fuel oil.

It is quickly tightening the market as the Organisation of Petroleum Exporting Countries (Opec) and its allies are sticking with their plan to only gradually roll back production cuts.

The price structure is flashing bullishness, with the difference between New York crude’s front two contracts surging to the widest in more than two years, indicating shrinking stocks in the US storage hub of Cushing.

Global benchmark Brent has risen about 20% since mid-August as the energy crisis has intensified.

Saudi Aramco estimates the gas shortage has already increased oil demand by about 500,000 barrels a day, while Citigroup estimates it could reach about 1-million a day in a bullish case. Citigroup raised its Brent price estimate for this quarter to $85 a barrel, potentially increasing to as high as $90 at times, on “higher demand, lost supply, gas-to-oil switching and price contagion this winter”, according to a report.

Still, there’s a possibility that signs of slowing global growth — partly because of soaring energy prices — will ease some of the demand pressure on crude.

Goldman Sachs cut its forecasts for US expansion in 2021 and 2022, blaming a delayed recovery in consumer spending. The energy crises in China and India may also lead to a slowdown in Asia.

Bloomberg News. More stories like this are available on bloomberg.com