A global energy crisis brought about by continued constraints on crude and natural gas supplies and rising demand pushed crude prices to seven-year highs this week.
West Texas Intermediate on the New York Mercantile Exchange rose four of five trading days this week and reached levels not seen since November 2014. Prices briefly crossed the $80 threshold Friday before adding $1.05 or 1.3 percent to close at $79.35 a barrel, up from $77.62 at Monday’s close. The week’s increase was the seventh consecutive weekly rise, the longest stretch since last December.
Natural gas prices on the NYMEX reached highs not seen since December 2008, closing above $6 per Mcf before sinking 64 cents Wednesday. Prices fell an additional 11 cents Friday to close at $5.56 per Mcf.
“Global supply will fall significantly short of demand this month as economic conditions continue to improve, helping to maintain higher commodity prices,” Ed Longanecker, president of the Texas Independent Producers and Royalty Owners Association, told the Reporter-Telegram by email.
“China’s decision to aggressively buy more crude oil to meet demand is further evidence of improving market conditions, which will likely compound the energy crisis in Europe,” he continued.
Longanecker went on to criticize the White House for continuing to call on members of the Organization of Petroleum Exporting Countries to increase production “while pushing policies that will depress domestic output.”
US oil and gas production, he wrote, “is among the most environmentally responsible in the world, with increasing levels of success in reducing emissions. Anti-oil and gas policies in the US will not decrease demand, but will actually make environmental conditions worse globally, while driving up the cost of goods and services for all Americans.”
Bloomberg reported this week brought many indications that supplies will remain constrained: Saudi Aramco said a global natural gas shortage was already boosting oil demand for power generation and heating, and the U.S. Energy Department said that it had no plans “at this time” to tap the nation’s oil reserves.
A weakening of the dollar on the back of worse-than-expected U.S. labor market data on Friday also boosted the appeal of commodities priced in the currency, Bloomberg added.
The economic recovery from the pandemic, along with supply disruptions in the U.S. Gulf of Mexico, had already tightened the market before rising natural gas prices spurred additional demand for oil products like diesel and fuel oil, Bloomberg said. The decision by OPEC producers and their allies to only modestly increase output in November threatens to further constrain supplies.
Meanwhile, various underlying oil market gauges are also showing signs of strength, according to Bloomberg. West Texas Intermediate crude’s nearest contract traded at the biggest premium to second-month futures since August in a sign of rising demand and tight supplies. The so-called prompt spread has increased as more of the world attempts to substitute fuel oil for natural gas as quickly as possible.
“They don’t need to buy it a month from now, they needed it yesterday,” Bob Yawger, director of the futures division at Mizuho Securities USA, told Bloomberg. “It’s a panic buyer’s situation.”
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