Crude prices extended gains on Monday, rallying to their highest levels since 2018 as global refineries fail to keep up with fuel demand that is projected to reach pre-pandemic levels by early next year.
Brent futures for November delivery grew 1.23% to more than $79 a barrel, the highest price since October 2018, while US crude benchmark West Texas Intermediate surged 1.28% to nearly $75 a barrel after a run of five consecutive weekly gains.
The rally is being attributed to the swift recovery of demand across the world as economies open up with the easing of pandemic restrictions. At the same time, a natural gas rally is expected to further push demand for oil higher as users switch fuels. However, global oil refining capacity is inevitably weighing on the supply-demand balance.
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One reason markets are tightening is because the Organization of Petroleum Exporting Countries (OPEC) and allied producers including Russia have been easing the agreed production limits, but not enough to meet global demand. Another is the extreme weather conditions impacting US crude output.
Oil “continues to be supported by broader concerns over tightness in energy markets,” Warren Patterson, head of commodities strategy at ING Group NV told Bloomberg.
“Demand is looking as though it will be stronger than expected in the near term,” the expert added.
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