Record high natural gas prices lift demand for oil

London — Oil prices rose by about 1% on Thursday after the International Energy Agency (IEA) said that record natural gas prices would boost demand for oil and top oil producer Saudi Arabia dismissed calls for additional Opec+ supply.

Brent crude futures gained 89c, or 1.1%, to $84.07 a barrel by 12.04pm GMT after falling 0.3% on Wednesday. US West Texas Intermediate (WTI) crude futures climbed 87c, or 1.1%, to $81.31, more than recouping the previous day’s 0.3% decline.

Oil demand is set to jump by 500,000 barrels per day (bpd) as the power sector and heavy industries switch from other more expensive sources of energy, the IEA said, warning that the energy crunch could stoke inflation and slow the world's economic recovery from the Covid-19 pandemic.

In its monthly report, the IEA increased its global oil demand growth forecast by 170,000 bpd to 5.5-million bpd for 2021 and by 210,000 bpd to 3.3-million bpd for 2022. The agency now expects total oil demand in 2022 to reach 99.6-million bpd, slightly above pre-pandemic levels.

Meanwhile, Saudi Arabia dismissed calls for additional Opec+ production increases, saying its efforts with allies are sufficient and serving to protect the oil market from the wild price swings seen in natural gas and coal markets.

Opec+ has done a “remarkable” job acting as a so-called regulator of the oil market, Saudi Arabia's energy minister Prince Abdulaziz bin Salman told a forum in Moscow on Thursday.

At its meeting earlier this month, Opec+ stuck to its previous agreement to increase output by 400,000 bpd a month as it unwinds production cuts.

A larger than expected fall in US fuel stocks also boosted prices on Thursday.

The American Petroleum Institute (API) said on Wednesday that US crude stockpiles rose by 5.2-million barrels for the week ended October 8, but petrol inventories fell 4.6-million barrels and distillate stocks declined by 2.7-million barrels, according to market sources who saw the API data.

Analysts in a Reuters poll expected crude inventories to rise 700,000 barrels but petrol stocks to drop 100,000 barrels and distillates to decline 900,000 barrels.

The US Energy Information Administration (EIA) is due to release its inventory report at 3pm on Thursday.

Oil prices were also supported by concerns over supply tightness after the EIA said on Wednesday that 2021 crude oil output in the US, the world's biggest producer, is now expected to decline more than previously forecast, though it will bounce back in 2022. 

Reuters