Crude gained 1.5% to end the day at $ 80.52. The last time oil closed above $ 80 was October 31, 2014.
High gas prices will only exacerbate high inflation, squeeze the budgets of American families and hurt President Joe Biden’s political fortunes.
“It’s just about trying to keep the lights on,” said Matt Smith, Kpler’s chief oil analyst for the Americas. “This essentially creates a demand which is usually not there”,
$ 100 worth of oil in the cards?
Citigroup on Monday raised its Brent oil forecast to $ 85 a barrel for the fourth quarter on Monday and said crude would likely hit $ 90 at times. The Bank of Wall Street spoke of a “price contagion this winter” and the expected switch of power plants from natural gas to oil.
Citi added that a “very cold winter” could see Europe “running out of gas” by February.
Oil has been around for a long time as a potential substitute for natural gas – except until recently it made no financial sense. This is because for much of the past twelve years natural gas prices have been very low, making the switch to oil unprofitable.
Bank of America has warned that a cold winter could increase demand for oil by half a million barrels a day, raising Brent crude to $ 100 a barrel. This in turn would cause a bigger shock to American drivers, as gasoline prices are calculated on Brent crude.
“We may only be one storm away from the next macro-hurricane,” Bank of America strategists wrote in a recent note to clients.
Record coal price in China
It’s not just high natural gas prices that play a role here.
Against this backdrop, gasoline prices have soared higher and higher in the United States, adding to inflationary pressures weighing on the economy.
Patrick De Haan, head of petroleum analysis at GasBuddy, said nationwide gas prices of $ 3.30 were likely just around the corner.
“Looking on the horizon, I really don’t see any organized price drop,” De Haan said. “The market is starting to feel explosive. The fundamentals are there to keep this going.”
OPEC at the helm
While demand is strong, oil supplies have simply not kept pace.
U.S. oil production has been slow to rebound after Covid, even as prices have skyrocketed. Many US oil companies are once again worried about over-supplying the market, and they are much more focused on returning money to shareholders who have lost heaps of money over the past decade.
Despite calls from the White House to OPEC and its allies to dramatically increase production, the group has only gradually increased production shelved in early 2020. For now, they seem to be content to leave oil prices remain high.
“They’ve always been the producers of swing,” Kpler’s Smith said, “but my God, they sure hold the power right now.”