Futures Movers: U.S. oil books first settlement above $80 in almost 7 years

U.S. oil futures on Monday settled above $80 a barrel for the first time in almost seven years, as a global energy crisis persisted, boosting crude demand.

“From a fundamental standpoint, the story remains virtually unchanged,” said Brian Steinkamp, commodity analyst at Schneider Electric, in a daily note. “Supply is tight as the world holds steady against COVID and economic activity continues to recover, sending fuel prices across the board higher throughout the year and surging as of late with the approaching” in the Northern Hemisphere.  

“Faced with these prices, attention is turning more and more to alternatives such as oil and associated products: Saudi Aramco commented last week that crude demand has increased by as much as 500,000 barrels a day as a direct result of elevated natural gas prices,” he said. 

Read: Lofty prices for natural gas may fuel a swing back to oil as a power source

WTI crude for November delivery


rose $1.17, or 1.5%, to settle at $80.52 a barrel on the New York Mercantile Exchange. That was the first finish for a front-month WTI contract above $80 a barrel and highest settlement since Oct. 31, 2014, according to Dow Jones Market Data.

Also see: Gasoline prices at a 7-year high may take a ‘bite out of holiday spending’, says GasBuddy

December Brent crude

the global benchmark, added $1.26, or 1.5%, to $83.65 a barrel on ICE Futures Europe, with prices logging the highest finish since Oct. 9, 2018.

Last week’s decision by the Organization of the Petroleum Exporting Countries and their allies to raise oil output by the previously agreed upon 400,000 barrels per day each month “remains a significant tailwind for oil and the refined products right now,” said Tyler Richey, co-editor at Sevens Report Research.”

“That supply side news combined with mostly encouraging economic data suggest demand should remain healthy and keep the physical market in a deficit in the months ahead,” he told MarketWatch.

In September, OPEC+ raised crude-oil output by 470,000 barrels per day, but many members still struggled to reach their production quotas, according to an S&P Global Platts survey released Monday. The 19 members with production quotas under the OPEC+ supply accord were a combined 570,000 barrels per day below their allocations for the month, the survey showed.

Also, potentially contributing to the energy crunch in Asia, flooding in China led to the shutdown of dozens of coal mines, lifting prices for Chinese coal futures to record levels Monday, according to the Financial Times.

Meanwhile, natural gas has “become pretty significantly overbought…with futures having risen nearly 70% since the mid-August lows,” said Richey. “While the trend remains rather bullish for natural gas on a medium time frame…we should not be surprised to see the market take a breather here and digest the recent rally.” 

Soaring natural-gas prices have contributed to a European energy crisis. Gas prices pulled back from highs last week after Russian President Vladimir Putin said the country would honor its export commitments, but the fuel remains historically elevated.

In the U.S. November natural gas


fell about 4% to settle at $5.345 per million British thermal units, a more than two-week low. Prices fell 2% on Friday.

Still, natural gas rose nearly 33% in September. Sky-high prices for the fuel are seen adding to demand for crude, with operators of gas-fired power plants, particularly in Asia, expected to switch to crude.

Oil-fired generation accounted for just 3% of world electricity in 2020, down from 11% three decades ago, noted analysts at Société Générale. In Europe, oil burning hasn’t accounted for more than 1.4% of European power generation at any point since 2018.

But in the Middle East and other areas, several utilities, including in Pakistan, Kuwait and South Korea, have started to boost oil purchases, they said.

“It seems that competing fuels can still have an impact on the oil price at the margin, even though only a few utilities can source and use additional fuel oil on the spot markets to avoid LNG (liquefied natural gas) prices,” the SocGen analysts wrote.

Oil didn’t initially rally alongside natural gas, perhaps because the prices for the two commodities had previously decoupled as they stopped directly competing with each other in terms of inputs, but also because worries over COVID-19 and economic uncertainties insulated crude, the analysts said. By late September, oil prices were trading at two-month highs thanks to strengthening demand and the lingering hit to output following hurricane damage in the Gulf of Mexico.

Also on Nymex Monday, petroleum product prices finished higher, with November gasoline

up 0.5% at $2.378 a gallon and November heating oil

up 1.7% at $2.515 a gallon, the highest since Oct. 29, 2014. Both contracts settled at their highest since October 2014.

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