Oil surged to a 10-month high — extending a powerful rally that threatens to rekindle inflation — as supply cuts from OPEC+ have tightened the market and Saudi Arabia’s energy minister shied away from any change in course.
(Bloomberg) — Oil surged to a 10-month high — extending a powerful rally that threatens to rekindle inflation — as supply cuts from OPEC+ have tightened the market and Saudi Arabia’s energy minister shied away from any change in course.
Global benchmark Brent futures topped $95 a barrel for the first time since November. Shrinking supplies have ignited a flurry of predictions that $100 oil could return in a roster than runs from industry heavyweights such as Chevron Corp. Chief Executive Officer Mike Wirth to traditional bears at Citigroup Inc.
The latest upswing has been marked by major moves in timespreads, one of the market’s most-keenly tracked gauges. Brent and West Texas Intermediate are now trading in backwardation, a bullish pattern indicating tight supplies, of more than $1 at the front of the curve. That comes as premiums for real-world barrels rocket higher, particularly in the US, traders and brokers said.
Crude has soared by almost a third since mid-June, with Riyadh and Moscow joining hands to curtail exports in a bid to drain inventories and drive a rebound in prices. An improving outlook in the world’s two biggest economies — the US and China — has also supported the advance. Oil’s relentless surge has been one of the standout features of commodity markets in the third quarter.
“The new upside target” sits near $95 a barrel for US futures, wrote Dennis Kissler, senior vice president for trading at BOK Financial Securities in a note to clients. “That being said, no market goes straight up forever, and at these levels crude futures are very vulnerable to any negative news that could trigger an ‘overbought’ major correction.”
On Monday, Saudi Arabia Energy Minister Prince Abdulaziz bin Salman told a conference in Canada that the Organization of Petroleum Exporting Countries was working to keep markets stable and improve energy security, without targeting a specific price. Output plans will be reviewed every month, he said.
Read More: Saudi Energy Minister Says OPEC Targeting Stable Oil Prices
The surge in energy costs looks set to boost inflationary pressures, complicating the task facing leading central bankers. Federal Reserve policy makers began their two-day meeting Tuesday, while Bank of England and Bank of Japan officials also hold meetings this week. Rising prices are also posing a political challenge for the Biden administration ahead of elections, with average retail gasoline prices already at a seasonal record in data going back to 2004.
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