Oil prices follow gas adding to global energy crunch

The price run-up has been spurred by soaring European gas prices, which have encouraged a switch to oil for power generation.

Oil prices rose again and are now more than 4% up on the week, as a global energy crunch has boosted prices to their highest for years and prompted China to demand increased coal production.

The price run-up has been spurred by soaring European gas prices, which have encouraged a switch to oil for power generation, and a decision by the Organisation of Petroleum Exporting Countries (Opec) and allies led by Russia to stick to plans to add only 400,000 barrels per day of supply in November.

With global energy demand growing, Opec and other producers have said they would stay the course of gradually bringing back production cuts, and while the US government said it was monitoring energy markets, it did not announce immediate plans for actions to lower prices. Brent crude futures rose $1.14 to $83.09 a barrel. 

"As other energy prices like natural gas and coal keep pushing higher, upside risks to the oil market have started to build," said Bank of America's Christopher Kuplent. Many analysts had expected Opec and its allies to deliver a bigger hike as the surge in natural gas prices looks set to cause a further spike in oil demand this winter.

The economic recovery from the pandemic, along with a supply disruption in the US Gulf of Mexico following Hurricane Ida, had already tightened the market before rising natural gas prices spurred additional demand for oil products like diesel and fuel oil.

Various underlying oil market gauges are also showing signs of strength. Surging oil prices have also helped lift selective stock markets. 

The Ftse-100 in London helped lift oil giants BP and Shell by 2%. 

Meanwhile, the price of fertilisers in the US has climbed in the US, threatening to push global food prices higher.                

The fertiliser market has been hit hard this year due to extreme weather, plant shutdowns, sanctions and rising energy costs in Europe and China, pushing prices past levels that traders and farmers hadn’t seen since the global financial crisis.

The energy squeeze in Europe and Asia has created a critical situation for the fertiliser industry, according to the biggest manufacturer in Hungary. 

Companies such as CF Industries and Yara International have had to shut plants or reduce production as prices for natural gas, the main feedstock for most nitrogen fertiliser, have surged. 

In India, the government has directed producers to refrain from raising prices.

The price spike of the crop nutrients deemed vital for producing enough food to supply a growing global population is stoking concerns of more inflation when many people still struggle to feed their families due to job losses and other lingering economic impacts from the pandemic. 

In the UK, pronounced inflation pressures may lead to an early rates hike by the Bank of England. 

“In the short term there is more potential for gilt [UK bond] yields to rise,” forcing the Bank of England to hiking rates, said Althea Spinozzi, a strategist at Saxo Bank. “In Europe, although inflationary pressures are intensifying, they are not as pronounced,” the analyst said. 

Reuters and Bloomberg