Brent set for weekly gain amid supply shortage concerns

Front-month ICE Brent has increased by a moderate $0.29/bbl on the day, to $95.99/bbl at 09.00 GMT. Brent futures have gained nearly 3% on the week.

PHOTO: A "first truly global" energy crisis is underway, according to the International Energy Agency. Getty Images

Upward pressure:

As the Energy Information Administration (EIA) reports record US exports, fears of domestic fuel tightness during the upcoming winter have pushed prices higher. US distillate fuel oil stocks have declined to 106 million bbls, which is la record low for the season, and only 27 days of supply, according to Reuters analysis.

Goldman Sachs has warned that diesel shortages are not confined to the US but are also spreading to Europe. Fuel prices are expected to rise this winter, according to the investment bank. Spanish oil and gas company Repsol's chief executive has cautioned that high diesel prices could be on the horizon, as parts of Europe are running out of middle distillates.

Besides the tight supply of almost every petroleum product, Price Futures Group's Phil Flynn believes "geopolitical war premiums are contributing to the upside risk factor." He says a cold winter could pose "significant upside risks" in the heating oil market.

Saudi Aramco's chief executive has said global markets are readjusting to Western sanctions on Russian oil, indicating that price caps are unlikely to affect Russian demand. According to him, Russians can sell their crude on different markets at the right discount.

Downward pressure:

Meanwhile, the IEA's claim that the energy crisis will be a "historic turning point" for energy transition is likely to add pressure to the current demand scenario. Globally, the IEA has estimated that European oil and gas consumption will have declined by 20% by 2032. In addition, the top three oil-consuming nations in the world - China, the US and India - will end this decade with more focus on renewable energy.

The future of China's demand and economy remains bleak following reports of renewed lockdowns across the country. Multiple cities including Beijing, Wuhan, Zhengzhou, and parts of Shanghai have gone under partial lockdown since the Chinese government doubled down on its anti-Covid policies.

Nomura analysts have reported that 28 cities across China were enforcing lockdown measures as of October 24. This has affected almost 207 million people in regions responsible for nearly a quarter of the national economy. The Chinese economy has also taken a hit as a result - with GDP falling by 2.6% in the second quarter of this year.

By Konica Bhatt

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