Brent approached $80-a-barrel on signs that the crude market is rapidly tightening amid a global energy crunch.
The global benchmark crude surged as much as 2.3% to the highest level since October 2018 and its U.S. counterpart topped $75 a barrel on Monday. Prices are set to continue climbing as supply struggles to catch up with fast-rising demand, according to Trafigura Group’s co-head of oil trading Ben Luckock. His remarks came on the same day that Goldman Sachs Group Inc. said Brent could hit $90 a barrel by year-end as the market is in a bigger deficit than many realize.
Oil has “the potential for even more upside in the weeks ahead as speculators play catch up and pile in from the long side so as to not miss out on the impressive returns,” said Ryan Fitzmaurice, a commodities strategist at Rabobank.
Crude is rallying on signs that inventories globally are falling sharply, with demand heating up ahead of winter and OPEC+ only slowly adding barrels back to the market. As traders eye the prospect of large market deficits, Trafigura said longer-dated oil prices remain cheap at around $70 a barrel. So-called timespreads, which gauge market strength, have rallied sharply in recent weeks in another sign that traders are positive about the outlook.
“Observable inventory draws are the largest on record,” Goldman Sachs analysts including Damien Courvalin wrote in a note to clients. “This deficit will not be reversed in coming months, in our view, as its scale will overwhelm both the willingness and ability of OPEC+ to ramp up.”
Meanwhile, OPEC+ is scheduled to meet on Oct. 4. to review its output policy. Internal documents from the group have already highlighted the risk of the natural gas crisis ramping up demand. World oil consumption could be boosted by an additional 370,000 barrels a day — roughly 6% of expected growth — if gas prices stay high for an extended period, according to the group.
U.S. natural gas futures rose for a third straight session on Monday as inventory levels stayed low ahead of the heating season.