By Myra P. Saefong and Barbara Kollmeyer
Oil prices extended their rise to multiyear highs on Friday, with U.S. and global benchmark crude scoring an eighth weekly gain in a row — the longest such streak of gains for a front-month Brent contract in over two decades.
Prices found support from expectations that global power producers will look to use oil, in place of natural gas and coal, amid shortages.
Natural-gas futures, meanwhile, gave back Thursday’s gain and then some, with prices down by nearly 5% Friday — pulling prices lower for the week.
“A massive shortage of coal and natural gas in Asia and Europe has left the power plants reluctantly having to choose crude oil over natural gas — a pattern not seen for at least a decade,” Manish Raj, chief financial officer at Velandera Energy Partners, told MarketWatch.
“This is a stark reversal of the foregone conclusion of natural gas being the preferred fuel for power generation worldwide,” he said. “The current trend is so astonishing that energy analysts had even stopped modeling the possibility of using crude oil for power generation; yet here we are amidst this energy crisis.”
And “the increased oil demand from power producers further squeezes the already tight crude supplies,” said Raj.
West Texas Intermediate crude /zigman2/quotes/211629951/delayed CL.1 +0.92% for November delivery rose 97 cents, or 1.2%, to settle at $82.28 a barrel, with front-month prices marking their highest finish since Oct. 21, 2014, according to Dow Jones Market Data.
December Brent crude BRN00 BRNZ21 , the global benchmark, rose 86 cents, or 1%, to $84.86 a barrel on ICE Futures Europe after hitting a session high above $85. Prices ended the session at their highest since Oct. 9, 2018.
Brent crude saw a weekly rise of 3%, up an eighth week in a row. That was the longest weekly streak of gains since the week ended April 30, 1999, according to Dow Jones Market Data.
WTI, the U.S. benchmark, was up about 3.7% for the week, also up an eighth straight week — the longest weekly winning streak since the week ended Aug. 20, 2004.
Velandera Energy Partners forecasts oil prices next month “testing $90 level or higher,” said Raj. “So long as coal and natural gas shortage persists in Europe and Asia, crude oil prices have nowhere else to go but up.”
Even if oil prices climb over $100, “crude oil would be more economical than [natural] gas, therefore exerting upward pressure to oil prices,” he said.
Oil prices surged Thursday after the International Energy Agency noted a “massive” switch to crude by power generators as natural gas, liquefied natural gas and coal supplies shortages drag on. Prices finished below the session’s best levels after U.S. government data showed a third-straight weekly rise in domestic crude inventories, the biggest since March.
On Friday, data from Baker Hughes /zigman2/quotes/205323712/composite BKR -0.72% suggested that increases in U.S. oil production are ahead, with the number of active U.S. oil drilling rigs up 12 at 445 this week, climbing for a sixth consecutive week.
Meanwhile, November gasoline edged up by 2.1% to $2.486 a gallon, gaining 5.1% for the week, while November heating oil added 0.5% to $2.574 a gallon, for a weekly rise of 4%.
Even if oil output is “further ramped up as planned in the coming months, the oil market will still be undersupplied to the tune of roughly 1 million barrels per day in the fourth quarter,” said Carsten Fritsch, commodity analyst at Commerzbank, in a note to clients.
November natural gas declined by 4.9% to $5.41 per million British thermal units, sending prices down 2.8% for the week. Prices gained 1.7% on Thursday.
“Downside factors such as a milder winter or easing of [liquified natural gas] shipping can alleviate [the] natural gas shortage and therefore the entire energy spectrum,” said Raj.
“Still, we believe that Asian and European natural gas price spikes are temporary, and will ease after the winter demand and when LNG supply lines are restored,” he said.