Oil prices extended their rally into the sixth session on Tuesday, with Brent crude hitting a near three-year high at above $80/bbl, amid concerns that post-pandemic global demand will outpace supply.
At 03:20 GMT on Tuesday, Brent crude was 57 cents higher at $80.1/bbl, after ending Monday’s session up 1.9% at $79.53/bbl.
US WTI crude rose by 58 cents to $76.03/bbl, reaching its highest level since July this year, after settling 2% higher the previous day.
The strength in crude futures drove up Asian naphtha prices, which rose to a three-year high on Monday.
The naphtha market was in backwardation, an indication of firm fundamentals, with first-half November delivery prices at $7.00/tonne higher than first-half December.
Further downstream, ethylene prices were also higher on Tuesday afternoon due to higher feedstock costs. Most crackers in Asia run on naphtha.
In the US Gulf, oil supply remains a concern with production from offshore oil drilling rigs shut by Hurricane Ida in late August slow to come back online. Some output, specifically domestic sour Mars, are expected to be impacted for months.
“The situation we find ourselves in is not too dissimilar from 2018. That was the last time we saw ICE Brent break above $80/bbl,” banking and financial services firm ING said in a note on Tuesday.
Back then, there were concerns that OPEC and its allies was overtightening the market and so the group decided to aggressively ease cuts, it said.
“OPEC+ will not want to make the same mistake this time around, particularly following the hard work they have put into rebalancing the market following Covid-19,” ING said.
The oil cartel has been cautious up until this point. However, it is still to be seen if they will continue to take this approach if calls to increase output at a quicker pace get louder, it said.
Investors are also keeping an eye on the energy crunch in the UK as fuel stations across London turned customers away due to no supplies, and the UK government considered bringing in army drivers to help ease the fuel supply-chain problem, according to Singapore-based UOB Global Economics & Markets Research in a note on Tuesday.