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Oil prices soar above $80 for the first time in 3 years as the natural gas shortage stokes demand

Sep 28, 2021, 16:14 IST
Business Insider
Oil prices are rising sharply as demand outstrips supply Jim Urquhart/Reuters
  • Oil prices rose above $80 for the first time in three years on Tuesday during a global energy crunch.
  • Analysts said investors were betting the natural gas shortage would drive up demand for oil.
  • Oil supply shortages, particularly in the US after Hurricane Ida, were also adding to the squeeze.
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Brent crude, the benchmark global oil price, rose above $80 a barrel for the first time in three years on Tuesday, as supply shortages and a natural gas crunch rocked energy markets.

The benchmark price rose as much as 1.7% to $80.75 a barrel before paring its gains slightly, according to Bloomberg prices. WTI crude, the US benchmark, rose as high as $76.67 a barrel.

Brent crude has risen around 55% this year as economies have reopened and demand has bounced back rapidly, while the OPEC group of crude-exporting countries have kept prices buoyant by limiting supply.

Oil-price rises have picked up speed over the last few weeks, however. One reason is that Hurricane Ida shut down much of the US's production capacity, limiting supply from a major market.

Another key reason, analysts said, is the ongoing energy crunch that has sent natural gas prices soaring in Europe. Investors are now betting that users will start buying oil as an alternative to natural gas, which has become prohibitively expensive for many industries.

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Read more: 2 commodities experts told us this is one of the most exciting environments they've seen in 40 years of investing. Here's why they're upbeat, and what they're buying to profit from it.

Goldman Sachs said this week it now expects Brent crude to hit $90 a barrel by the end of the year, compared to a forecast of $80 a barrel previously.

The bank said that the impact of Hurricane Ida that shuttered production capacity in the Gulf of Mexico and much of the shale basin has more than offset a recent increase in oil production from OPEC and its allies, known as OPEC+.

And it said: "Winter demand risks are further now squarely skewed to the upside as the global gas shortage will increase oil fired power generation."

Analysts said China was also a key part of the equation. The country has been hit by soaring gas and coal prices during the global energy crunch, which is likely to boost demand for oil as a substitute in power generation.

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Power outages in China, caused in part by an anti-pollution drive, are also set to increase oil demand, analysts said.

Louise Dickson, senior oil markets analyst at Rystad Energy, said: "The rise of oil prices is continuing beyond what even most bullish traders would dream just months ago."

Yet she added: "Upward space for price maneuvering could just as easily be extinguished, either as investors opt for profit-taking or, in the longer term, as a lethargic economic recovery brings commodity prices back down to a more humble perch."

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