New oil price surge fuels fresh inflation fears      

Even Opec adding back supply to the market is not 'necessarily going to have a massive impact on cooling the price of oil', said City Index analyst Fiona Cincotta. File Picture.

The price of global crude oil approached $85 a barrel, as a growing power crisis from Europe to Asia boosts demand for oil ahead of winter.

Brent crude rose as much as 2.7% to its highest level since October 2018. Prices of coal and natural gas have surged globally, with stockpiles running low before the northern hemisphere winter, prompting some switching to oil products such as diesel and fuel oil.

Brent crude has advanced about 20% since mid-August as the energy crisis has intensified. 

Saudi Aramco estimates the gas shortage has already increased oil demand by around 500,000 barrels a day, while Citigroup estimates it could reach about 1m a day in a bullish case.

It is quickly tightening the market as the Organisation of Petroleum Exporting Countries (Opec), and its allies are sticking with their plan to only gradually roll back production cuts. 

The oil market’s price structure is flashing bullishness. 

There is definitely this fear of the supply side going to dry up,” said Fiona Cincotta, senior financial markets at City Index. 

Even Opec adding back supply to the market is not “necessarily going to have a massive impact on cooling the price of oil. Oil to $90 is clearly in sight”. 

Citi raised its Brent price estimate for this quarter to $85 a barrel, potentially increasing to as high as $90 at times, on “higher demand, lost supply, gas-to-oil switching, and price contagion this winter”, according to a report. 

Various underlying oil market gauges are showing signs of strength. 

Still, there is a possibility that signs of slowing global growth — partly because of soaring energy prices — will ease some of the demand pressure on crude. 

Goldman Sachs Group cut its forecasts for US expansion this year and next, blaming a delayed recovery in consumer spending. The energy crises in China and India may also lead to a slowdown in Asia.

Prices for coal, gas, and electricity have also surged to record highs in recent weeks, driven higher by widespread energy shortages in Asia, Europe, and the US.

Qatar, the world's largest seller of liquefied natural gas, told consumers it was powerless to cool energy prices as British steelmakers said they could be forced to halt output in the face of soaring costs.

In India, some states are experiencing electricity blackouts because of coal shortages. China's government, meanwhile, has ordered miners to ramp up coal production as power prices surge.

The news from last week that the [US] Department of Energy is not planning to tap into strategic reserves for now is keeping the oil market tight and is supporting prices," said UBS analyst Giovanni Staunovo.

Meanwhile, Britain's business minister Kwasi Kwarteng has submitted a formal bid to the finance ministry for assistance to help industries affected by high energy prices, the BBC has reported. 

UK producers of steel, glass, ceramics, and paper and other sectors have said they may be forced to halt production unless the British government does something about energy prices, which have rocketed due to a shortage of natural gas in Europe. 

Bloomberg and Reuters