Brent oil jumps to nearly 3-year high

Brent crude gained during early trade on Tuesday, hitting 80 per barrel for the first time since October 2018, before reversing gains and falling into negative territory. The pause comes after five consecutive positive sessions for oil, with the advance fueled by recovering demand while supply remains tight.

West Texas Intermediate oil futures hit a more than two-month high of 76.67 a barrel before falling. The contract closed the day at 75.29 per barrel, a 0.21 percent loss. WTI and Brent have gained five weeks in a row, and both are up more than 50% for 2021. A prolonged supply deficit is causing an ever tighter oil market, with OECD inventories likely to conclude the year with the lowest level of demand cover in decades, Barclays analysts wrote in a note to investors. The business raised its WTI and Brent targets for 2022 to 74 and 77 per barrel, respectively.

Brent fell 0.55 percent to 79.09 per barrel at the close. Goldman Sachs expects the contract to reach $90 by the end of the year as demand recovers. After estimating Brent at $80 by the end of the year, the business raised its projection to $90 on Sunday.

OPEC and its partners

As the pandemic depleted global demand for petroleum products, momentarily putting WTI into negative territory, producers implemented historic output cuts in April 2020. OPEC and its partners pulled over 10 million barrels per day from the market, and while the club has gradually opened the taps, members are still limiting output.

In the United States, a similar story unfolded. Wells has been shut down, and producers have been hesitant to ramp up output. Instead, they have concentrated on strengthening balance sheets, paying down debt, and returning funds to shareholders. Demand has now recovered as a result of the vaccine’s widespread distribution, but supply remains tight. It is especially true given the sector’s years of underinvestment. Oil is also benefiting from the skyrocketing rise in natural gas prices, which may drive utilities to move from gas to oil.

Natural gas futures rose more than 9% to $6.26 per million British thermal units at one stage on Tuesday, the most significant level in at least 7.5 years. With inventory below historical levels heading into the winter, the contract is more than 40% for September.

Global natural gas markets are extremely tight right now, with inventories significantly below average in both Europe and the United States,” said Ed Morse, global head of commodities at Citi. 

In September, the oil sector is by far the highest performing S&P 500 sector, up more than 10%. The Energy Select Sector SPDR Fund managed to hang onto its gains and ended the day up 0.5 percent.