Global power crunch buoys Brent crude to cross $86 a barrel mark

Oil prices hit multi-year highs, buoyed by recovering demand and high natural gas and coal prices encouraging users to switch to fuel oil and diesel for power generation Brent crude oil futures were up 13 cents, or 0.15 per cent, to $84.73 a barrel, after hitting $86.04 a barrel, highest since October 2018.

US West Texas Intermediate (WTI) crude futures climbed 22 cents, or 0.27 per cent, to $82.5 a barrel, after hitting $83.73, their highest since October 2014. Both contracts rose by at least 3 per cent last week.

Easing restrictions around the world are helping recovery in fuel consumption. The entire world is facing a major power crisis. Natural gas prices are also hitting the roof. With the onset of winter, many power generation companies, particularly in Europe and the US are switching from gas to oil for power generation. This alone could boost crude oil demand by almost 450,000 barrels per day in the fourth quarter.

Cold temperatures in the northern hemisphere are further expected to worsen an oil supply deficit.

“The oil market deficit seems poised to get worse as the energy crunch will intensify as the weather in the north has already started to get colder,” said an analyst report. “As coal, electricity, and natural gas shortages lead to additional demand for crude, it appears that won’t be accompanied by significantly extra barrels from OPEC+ or the US,” it added. 

China’s daily crude processing rate in September also fell its lowest level since May 2020 as a feedstock shortage and environmental inspe­c­­tions crippled operations at refineries, while independent refiners faced tightening crude import quotas. “The $80 a barrel level continues to offer plenty of support and a revisit above $85 could trigger an acceleration towards $90. Yet this is by no means a foregone conclusion,” analysts added.

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