Brent marches towards $80 amid global supply crunch
Supply chain fears have triggered panic buying at British petrol stations
Oil prices climbed for the fifth consecutive day on Monday, as fears of an impending global supply crunch mounted. Brent crude futures rose by 1.2% to $79.45 per barrel, an almost three-year high. WTI crude futures rose to a near-three month high, hitting $75 per barrel.
Since the lifting of coronavirus restrictions around the globe, demand for oil has consistently outweighed supply.
Despite the urging of international bodies and US President Joe Biden, the Organisation of the Petroleum Exporting Countries (OPEC) and its allies have refused to accelerate their process of easing output curbs. OPEC attributed its unwillingness to the uncertain threat posed by the Delta variant of Covid-19.
Hurricane Ida hinders US production
Hurricane Ida, the fifth-largest weather event to make landfall on the US mainland, further complicated matters at the start of the month. The storm temporarily knocked the East Coast’s main oil and gas pipeline offline and inflicted lasting damage on platforms across the Gulf of Mexico.
As a result of the disruption, US crude inventories in the week to 17 September fell to 414 million barrels, their lowest level in almost three years.
China acts over limited supply
The limited supply has even forced China to make the unprecedented decision to sell some of its state reserves on the international market in an explicit attempt to contain prices. Although Hengli Petrochemical and PetroChina purchased more than 4.4 million barrels of oil, prices have continued to tick upwards.
The significant jump enjoyed by natural gas prices in recent weeks has also heightened the oil price. With Asian demand, limited Russian exports and supply chain issues sending LNG prices in Europe to record highs, both governments and consumers are expected to turn to other forms of fuel.
Fear about a lack of petrol seemingly accelerated and exacerbated the UK’s fuel crisis over the weekend. Having last week contended with the impact of surging natural gas prices, the British government is now struggling to resolve a supply chain crisis triggered by a shortage of heavy goods drivers.
On Monday, almost 90% of British petrol stations ran dry across major English cities after a weekend of panic buying at the pumps. On Sunday, BP stated that a third of its stations across Britain had run out of the two main grades of fuel. So profound is the situation, that the government has suspended competition laws, allowing companies to collaborate to resolve it.
By noon (BST), spot Brent and spot WTI traded by 1.3% and 1.2% at $78.26 and $74.85 per barrel, respectively.
Further reading: Geopolitical tensions flare amid natural gas shortage