Five reasons why global oil prices hit 3-year high

On Monday, oil rose 2% to $1.70, or 2.1%, to $84.09 a barrel, along with Brent crude, its highest level since October 2018. US West Texas Intermediate (WTI) crude rose $2.08, or 2.6%, to $81.43 a barrel. At the end of 2014.

Crude has risen by over 60% this year as the roll-out of Covid-19 vaccines curbed movement and, subsequently, drove off demand for oil. An energy crisis is gripping major economies with no shortage, even as major oil producers hold on to restrained supplies.

So, why is the oil market constantly on the boil?

– Prices have risen as more immunized populations are brought out of the coronavirus lockdown, supporting a revival in economic activity.

At the same time, global commodity prices, from Asia to Europe, including those used as fuels for electricity generation, such as coal and gas, have also risen. In India, some states are facing power blackouts due to shortage of coal. Meanwhile, China’s government has ordered miners to ramp up coal production as electricity prices rise.

This makes oil an attractive commodity for generating electricity and keeps economic activity stable, and thus higher demand is driving crude markets higher.

HDFC Senior Analyst (Commodities) Tapan Patel said, “Crude oil surged to a seven-year high on strong fundamentals coupled with global power crunch and short supply concerns. Crude oil prices rising from gas and coal consumers. But increased due to alternative demand.” securities.

“The recent surge in natural gas and coal prices globally has increased the demand for crude to meet the demand for electricity. Crude oil prices trade with resistance at $83 and support at $80 a barrel. Expects MCX Crude Oil Support in October ₹5,990, at resistance ₹6,180,” Patel said.

Rising crude oil prices for India are a matter of concern for the Indian economy. Apart from the high cost of fuel taking a toll on the Centre’s fiscal discipline, the hike in oil could also take a toll on consumers. This will put pressure on the central government to cut taxes on fuel or subsidize oil marketing companies (OMCs).

Analysts say the uptrend in oil prices is likely to continue in the near term. To meet market demand, OPEC and allies, known as OPEC+, last week decided to maintain a steady and gradual increase in output.

While OPEC+ has promised to return more stalled supply to the market, growth is unlikely to meet rising demand in industrialized economies, especially with the winter months approaching.

Meanwhile, markets are looking to the US as Energy Secretary Jennifer Granholm raised the possibility of releasing crude from the government’s Strategic Petroleum Reserve. However, it’s not going to come anytime soon

“Last week’s news that the (US) Department of Energy is not planning to tap into strategic reserves for now is keeping the oil market tight and supporting prices,” said UBS analyst Giovanni Stanovo. “

Drillers in the US are taking advantage of price increases and last week added five new oil wells for the fifth consecutive weekly increase in oil and gas rigs.

“Stock reduction, OPEC discipline and the current energy crisis will provide solid price support over the next three months,” said Tamas Varga, another oil analyst at London brokerage PVM Oil Associates.