Crude Prices Rise As Bank Of America Warns Of $120 Oil - And More Inflation

Meanwhile, an inventory rise in the U.S. is greeted positively: File Image/Pixabay

Monday saw yet more compelling evidence that demand is going to continue to intensify in coming weeks and months, and accordingly crude prices once more climbed  – but not as much as some analysts expected, due to a surprise stock build at the biggest U.S. storage hub.

West Texas Intermediate rose 48 cents to settle at $84.05 per barrel, while Brent gained 99 cents to settle at $84.71 per barrel.

Trading was motivated by several factors, including China over the weekend announcing it would release state reserves of diesel and gasoline to ease shortages.

Also, U.S. president Joe Biden on Sunday criticized Saudi Arabia and Russia for an inadequate response to the energy crunch, which was followed on Monday with Kuwait becoming the latest country to declare that the Organization of the Petroleum Exporting Countries (OPEC) should maintain increasing output only gradually.

The argument for staying put stems from the assumption that the pandemic is still sapping demand and could intensify, thus triggering more lockdowns; also, some countries are struggling to reach their higher output quotas and acting more rapidly would make things even more difficult.

Still, a full demand recovery seems inevitable: Fernando Valle, analyst at Bloomberg Intelligence, said Biden's new vaccine-based travel rules are forecast to boost jet fuel consumption as they bring the U.S. more in line with the European Union: "We've picked up a lot on domestic travel and should pick up more than 250,000 barrels a day with easing restrictions on vaccinated travellers."

George Dix, an oil analyst at Energy Aspects, thinks the boost will be more on the order of 200,000 bpd: "We expect the main boost to be from U.S.-Europe flights as U.S.-Latin America was already operating close to pre-virus levels, and several other countries in other regions are still some way off from opening up for international flights."

Unsurprisingly, Bank of America on Monday said higher aviation activity, gas to oil switching due to high gas prices, and a jump in crude consumption over a cold winter could boost diesel prices above $120 per barrel.

BofA analysts wrote in a note, "If all these factors come together, oil prices could spike and lead to a second round of inflationary pressures around the world."

In this context of robust demand indications outstripping worry over virus resurgence, Wood Mackenzie data showing inventories at Cushing, Oklahoma rising by about 852,000 barrels in the period Oct. 26-Oct. 29 was viewed favourably: Rebecca Babin, senior energy trader at CIBC Private Wealth Management, remarked that the build "should at least quell the panic on inventories."