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Increasing oil prices as COVID recovery, and power generators fuel demand

Increasing oil prices as COVID recovery, and power generators fuel demand

  • Summary:
  • Brent touches highest since Oct 2018, WTI highest ever since October 2014.
  • Gas, coal, and rising coal prices encourage switch to oil products for power generation.
  • China cuts independent refinery oil import quotas.

LONDON, Oct 18, Oil prices hit multi-year highs on Monday, buoyed by recovering demand and rising natural gas and coal prices, urging consumers to switch to fuel oil and diesel for power generation.

Brent crude oil futures were up 59 cents or 0.7% to $85.45 a barrel by 0900 GMT, their highest level since October 2018.

West Texas Intermediate (WTI) crude futures rose 90 cents, or 1.1%, to $83.18 a barrel, their highest since October 2014.

Both contracts rose by at least 3% last week.

"Easing restrictions around the world are likely to help the recovery in fuel consumption," analysts at ANZ bank said in a note, noting that gas-to-oil switching for power generation alone might boost demand by as much as 450,000 barrels per day in the fourth quarter.

Edward Moya, OANDA's senior analyst, said that cold temperatures in the northern hemisphere are also expected to worsen an oil supply deficit.

"The oil market deficit seems to be on its way to worsening as the north's weather has already begun to get colder," he added.

"As coal, electricity, and natural gas shortages increase demand for crude, it appears that substantial extra barrels from OPEC+ or the United States won't be accompanied by significant additional barrel purchases from the country," he added.

Prime Minister Fumio Kishida said on Monday that Japan would urge oil producers to increase output and take measures to reduce the impact of rising energy costs on industry.

China's third-quarter economic growth fell to its lowest level in a year, hurt by power shortages, supply bottlenecks and sporadic COVID-19 outbreaks.

China's daily crude processing rate in September fell to its lowest level since May 2020, as a feedstock shortage and environmental inspections crippled operations at refineries, while independent refiners faced tightening crude import quotas.

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