(C) Reuters. FILE PHOTO: Crude oil storage tanks are seen from above at the Cushing oil hub, in Cushing, Oklahoma, March 24, 2016. REUTERS/Nick Oxford/File Photo
By Sonali Paul and Roslan Khasawneh
SINGAPORE (Reuters) -Oil prices rose on Friday, tracking towards a 4.5% gain for the week on signs some industries have begun switching fuel from high-priced gas to oil and on doubts the U.S. government would release oil from its strategic reserves for now.
“A lot of catalysts are out there to keep the oil market tight,” said Edward Moya, a senior market analyst at brokerage OANDA, pointing to signs of improved fuel demand as economic activity rebounds and coronavirus restrictions ease as well as fears that a cold winter will further strain gas supplies.
Expectations are high “that nothing in the immediate future will change the significant supply/demand deficit that is in place”, said Moya.
Brent crude futures jumped 93 cents, or 1.1%, to $82.88 a barrel by 0503 GMT.
U.S. West Texas Intermediate (WTI) crude futures climbed by $1.02, or 1.3%, to $79.32 a barrel.
Earlier in the week, WTI touched a near seven-year high of $79.78 while Brent hit a three-year high of $83.47.
“Oil prices lifted after the U.S Energy Department said it has no plan ‘at this time’ to tap into U.S. strategic oil reserves to cool the rally in oil prices,” Commonwealth Bank analyst Vivek Dhar said in a note.
However, a U.S. Department of Energy source told Reuters that a social media post by a Bloomberg reporter that said the department was not considering tapping into the strategic petroleum reserve (SPR) “at this time” was not accurate, while adding that all “tools are always on the table” to tackle tight energy supply.
“Another run-up in prices, particularly Brent breaching $85/bbl mark, could reignite the conversation about whether to take such action (SPR releases) to mitigate rising energy prices,” commodity strategist Michael Tran at RBC Capital Markets said in a note on Friday.
Overall, the week’s run-up has been spurred by soaring gas prices encouraging a switch to oil for power generation and by some industries, along with a decision by the Organization of Petroleum Exporting Countries and allies led by Russia, together called OPEC+, to stick to plans to add only 400,000 barrels per day of supply in November.
Analysts said the surge in gas prices and the extent of fuel switching from gas to oil would be the key factor to watch now.
“An acceleration in gas-to-oil switching could boost crude oil demand used to generate power this coming northern hemisphere winter,” an ANZ commodities analyst said in a note, adding that U.S. distillate stocks, which include diesel and heating oil, are at their lowest heading into winter since 2000.
JP Morgan analysts noted that they have yet to hear of significant gas-to-oil switching in the European power sector.
“This means that our estimate of 750,000 barrels per day of gas-to-oil switching demand under normal winter conditions could be significantly overstated,” JP Morgan analysts said in a note.
Oil climbs on switch from gas and few signs of an easing supply crunch