Oil extends rally as WTI nears US$75 a barrel on energy crunch

Oil has surged more than 80 per cent over the past year.
Oil has surged more than 80 per cent over the past year.PHOTO: AFP

NEW YORK (BLOOMBERG) - Oil gained at the start of the week's trading on signs that the crude market is tightening because of the global energy crunch.

West Texas Intermediate closed in on US$75 a barrel after a run of five weekly gains, while Brent hit the highest level since October 2018. Inventories have been drawing, with United States stockpiles near a three-year low. At the same time, a rally in natural gas looks set to drive demand for oil as users switch fuels.

Oil has surged more than 80 per cent over the past year as worldwide demand recovers from the disruption caused by the pandemic. On the supply side, the Organisation of Petroleum Exporting Countries and its allies including Russia have been easing output curbs only slowly, permitting markets to tighten. In addition, extreme weather in the US has crimped local production.

On the threshold of the fourth quarter and onset of the northern hemisphere winter, a host of market watchers have flagged further gains in prices. Among them, Goldman Sachs Group said the market's deficit was larger than expected, and raised its year-end Brent forecast by US$10 to US$90 a barrel.

Key market timespreads have been widening, suggesting that traders are increasingly positive about the outlook. Brent's prompt spread was 85 US cents a barrel in backwardation, a bullish pattern with near-dated prices above those further out. That is up from 61 US cents a week ago.