Americas News
Oil Hits The $80s Over Energy Crunch Fears, But Some Analysts Warn Of Correction
West Texas Intermediate on Monday rose nearly 3 percent and touched a seven-year high, coinciding with rising fears of what consequences the energy crunch will have on global economies.
Joshua Mahony, senior market analyst at IG, wrote in a client note, "There are undoubtedly significant risks to growth borne out of the recent rise in prices, with surging natural gas prices bringing the potential for sharp increases to both energy and food expenses.
"Inflation looks like it will be here for some time."
Brent was up 81 cents, or 1 percent, at $83.20 per barrel by 0212 GMT, after gaining almost 4 percent last week; WTI was up $1.15, or 1.5 percent, at $80.50 per barrel, the highest since late 2014.
Despite crude prices rising as Covid rates decline globally and travel restrictions ease, some analysts think prices may falter in the wake of U.S. inventories starting to increase again: "We think crude prices will struggle to climb much higher this quarter and still forecast them to gradually drop next year," Caroline Bain, chief commodities economist at Capital Economics, said in a note.
For his part, John Kemp, commodities analyst at Reuters, said that while climbing oil prices continue to attract fresh buying interest from hedge funds, "the trade is becoming crowded and at risk of a sudden reversal......if economic growth or fuel switching disappoints expectations."
But for the main, the analytical community is inclined towards predicting a continuation of rising prices: leading the pack of this train of thought is Citigroup Inc., which on Monday said oil prices may hit $90 per barrel at times this winter as gas-to-oil switching drives stockpiles lower.
The bank went on to note that inventories may dwindle to their lowest level on record in terms of days-of-cover by year-end, with consumption getting a boost of as much as 1 million barrels per day (bpd) from consumers making the switch from natural gas to oil-based products.
Still, Daniel Yergin, vice chairman of IHS Markit, thinks the U.S. at least is in a better position than other countries and likely won't have to ration demand for natural gas using measures such as power curtailments "unless we have a very bad winter."
Yergin also predicted that Washington will soon ask the Organization of the Petroleum Exporting Countries (OPEC) member states to pump more crude to help ease the surge in energy prices.
Presumably helping the situation will be shale production: Bloomberg on Monday reported that output in the Permian Basin has all but returned to pre-pandemic levels thanks to $80 oil, with Occidental and Chevron preaching discipline while privately owned operators lead the charge.
