Oil futures headed higher for a fourth straight session on Friday, with Brent crude, the global price benchmark, trading at its highest since October 2018.
“The market is pricing in a prolonged impact of supply disruptions, and the likely storage draws that will be needed to fulfill refinery demand,” said Louise Dickson, senior oil market analyst at Rystad Energy, in daily commentary.
“Even as barrels come back on production, the perceived supply shortage, paired with bullish hints of demand recovery, have significantly tightened the market, at least in the very short-term, paving the ascent of Brent to above $77 per barrel,” she said.
West Texas Intermediate crude for November delivery CL00, +0.59% CLX21, +0.59%, the U.S. benchmark, was up 45 cents, or 0.6%, at $73.75 a barrel on the New York Mercantile Exchange, poised for another finish at the highest since late July.
Front-month November Brent BRNX21, +0.71% rose 54 cents, or 0.7%, at $77.79 a barrel on ICE Futures Europe, set for another settlement at the highest in almost three years. December Brent BRN00, +0.65% BRNZ21, +0.65%, the most actively traded contract, was up 52 cents, or 0.7%, at $76.98 a barrel.
For the week, WTI crude traded around 2.7% higher, while front-month Brent prices were up 8.6%.
“The price rise is being facilitated by limited supply (production outages in the Gulf of Mexico, lower OPEC+ production than agreed) coupled with robust demand, causing the oil market to tighten noticeably,” said Carsten Fritsch, analyst at Commerzbank, in a note.
The Bureau of Safety and Environmental Enforcement on Thursday estimated that 16.2% of U.S. Gulf oil production, or around 294,414 barrels a day, remained shut in after Ida made landfall on the Louisiana coast on Aug. 29. Meanwhile, refinery activity has rebounded more quickly than production, analysts noted.
Reuters earlier this week reported that members of the Organization of the Petroleum Exporting Countries and its allies, known as OPEC+, have struggled to boost production after agreeing to begin further easing output curbs starting in August.
With the OPEC+ meeting for Oct. 4, the group of oil producers will “need to decide on a supply plan — either to stoke oil prices higher towards $80 per barrel Brent, or take action to boost supply and normalize prices,” said Rystad Energy’s Dickson.
“If OPEC+ decides oil is getting too expensive, it could call on some key producers with sizeable spare capacity, such as Saudi Arabia, to step up production and trim prices back towards the low to mid $70s,” she said.
For now, crude balances remain bullish, driven by gasoline demand, but lower demand for non-core refined products such as jet fuel will put bearish pressure on liquids balances,” said Dickson. There’s also a “healthy dose of downside risk for prices” as flu season and potential new CCOVID-19 variants approach.
On Nymex Friday, October gasoline RBV21, -0.08% shed 0.3% to $2.165 a gallon, with the contract trading down 0.3% for the week. October heating oil HOV21, +0.21% tacked on nearly 0.2% to $2.252 a gallon, poised for a weekly rise of around 2%.
October natural gas NGV21, +1.33%, which expires at the end of Tuesday’s session, traded at $5.044 per million British thermal units, up 1.4% in Friday dealings, but poised for a weekly loss of over 1%.