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Futures Movers: U.S. oil benchmark eyes first settlement above $80 a barrel in almost 7 years

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Oil futures began the week higher on Monday, with the U.S. benchmark on track to finish above $80 a barrel as a global energy crisis continued to boost demand for crude.

Front-month oil futures contracts are poised to settle at fresh multiyear highs, with global benchmark Brent crude on track for their highest finish since October 2018 and U.S. benchmark West Texas Intermediate crude set for the highest settlement since late October 2014.

“From a fundamental standpoint, the story remains virtually unchanged,” said Brian Steinkamp, commodity analyst at Schneider Electric, in a daily note. “Supply is tight as the world holds steady against COVID and economic activity continues to recover, sending fuel prices across the board higher throughout the year and surging as of late with the approaching northern winter.” 

“Faced with these prices, attention is turning more and more to alternatives such as oil and associated products: Saudi Aramco commented last week that crude demand has increased by as much as 500,000 barrels a day as a direct result of elevated natural gas prices,” he said. 

Read: Lofty prices for natural gas may fuel a swing back to oil as a power source

WTI crude for November delivery
CL00,
+2.16%

CLX21,
+2.16%

rose $1.79, or 2.3%, to $81.14 a barrel on the New York Mercantile Exchange. A front-month WTI contract hasn’t finished above $80 a barrel since Oct. 31, 2014, according to FactSet.

December Brent crude
BRN00,
+1.82%

BRNZ21,
+1.82%
,
the global benchmark, was up $1.56, or 1.9%, to $83.95 a barrel on ICE Futures Europe, with prices set for the highest finish since October 2018.

“Power concerns continue to offer support to the oil market. This is a trend we are likely to see continue through the winter,” said Warren Patterson, head of commodities strategy at ING, in a note.

Soaring natural gas prices and other woes have contributed to a European energy crisis. Gas prices pulled back from highs last week after Russian President Vladimir Putin said the country would honor its export commitments, but the fuel remains historically elevated.

In the U.S., November natural gas
NG00,
-1.85%

NGX21,
-1.85%

was down 2.1% at $5.451 per million British thermal units, after falling 2% on Friday.

Still, natural gas rose nearly 33% in September. Sky-high prices for the fuel are seen adding to demand for crude, with operators of gas-fired power plants, particularly in Asia, expected to switch to crude.

Oil-fired generation accounted for just 3% of world electricity in 2020, down from 11% three decades ago, noted analysts at Société Générale. In Europe, oil burning hasn’t accounted for more than 1.4% of European power generation at any point since 2018.

But in the Middle East and other areas, several utilities, including in Pakistan, Kuwait and South Korea, have started to boost oil purchases, they said.

“It seems that competing fuels can still have an impact on the oil price at the margin, even though only a few utilities can source and use additional fuel oil on the spot markets to avoid LNG (liquefied natural gas) prices,” the SocGen analysts wrote.

Oil didn’t initially rally alongside natural gas, perhaps because the prices for the two commodities had previously decoupled as they stopped directly competing with each other in terms of inputs, but also because worries over COVID-19 and economic uncertainties insulated crude, the analysts said. By late September, oil prices were trading at two-month highs thanks to strengthening demand and the lingering hit to output following hurricane damage in the Gulf of Mexico.

Also on Nymex Monday, petroleum product prices were higher, with November gasoline
RBX21,
+1.03%

up 0.9% at $2.388 a gallon and November heating oil
HOX21,
+1.58%

up 1.7% at $2.515 a gallon.

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