Oil at seven-year high

Oil was up Friday morning in Asia and was set to end the week with gains of more than 2%. There are increasing signs of tight supply over the next few months as soaring gas and coal prices are encouraging a switch to oil products.

Brent oil futures rose 0.74% to $84.62 by 12:26 AM ET (4:26 AM GMT) and WTI futures rose 0.68% to $81.86.

Meanwhile, crude oil supply data from the US Energy Information Administration showed a 6.088-million-barrel build for the week ended Oct. 8. This was much bigger than the 702,00-barrel build in forecasts prepared by Investing.com and the 2.346-million-barrel build reported the week before

Data from the American Petroleum Institute, released a day earlier, showed a build of 5.213 million barrels.

However, Organization for Economic Co-operation and Development (OECD) oil stockpiles have declined sharply to their lowest level since 2015. Fuel demand is picking up as economic recovery from Covid-19 progresses, with a turn away from expensive gas and coal to fuel oil and diesel for power giving the black liquid a further boost.

“This energy crisis, particularly in coal and gas, has really pushed up the energy complex higher and oil has benefited as a result,” Commonwealth Bank commodities analyst Vivek Dhar told Reuters.

The International Energy Agency said on Thursday that the crisis could boost oil demand by 500,000 barrels per day (bpd), resulting in a supply gap of around 700,000 bpd through the end of 2021. The Organization of the Petroleum Countries and allies (<a href=’https://theenergyyear.com/companies-institutions/opec/’>OPEC+) is expected to add more supply in January 2022.

“You’re looking at a narrow window where things can tighten considerably, but it’s going to be very weather-dependent,” said Dhar.

Meanwhile, the global oil market is shaping up for a strong bull cycle, led by supply tightening and demand strengthening at the same time, according to RBC Capital Markets analysts.

“We maintain the view that we have held all year, that the oil market remains in the early days of a multi-year, structurally strong cycle,” RBC analyst Michael Tran said in a note.

First published on Investing.com