RIYADH: Natural gas prices in Europe equivalent to $200 a barrel of crude are pushing more power producers to burn oil instead.
Gas-to-oil switching helped crude oil prices add about 4 percent last week. Brent crude closed at $82.39 a barrel on Friday after hitting a three-year high of $83.47 earlier in the week, while US benchmark WTI ended the week at $79.35, close to the highest level since October 2014.
A rebound in demand as economies recover from the pandemic, continued supply issues in the Gulf of Mexico and a decision by OPEC+ this week to continue a measured increase in production all helped to ensure the market will remain tight in the coming weeks.
Moreover, surging natural gas prices are increasing demand for crude oil, prompting investment bank ANZ to increase its 2021 fourth-quarter crude oil demand forecast by 450,000 barrels per day.
Over the past few weeks, worries that Europe would not have enough gas in storage for the winter heating season and high demand for the fuel in Asia boosted global prices to record peaks.
US prices followed, reaching their highest since 2008 this week, on expectations competition between Europe and Asia would keep demand for US liquefied natural gas (LNG) exports strong. But global prices fell late this week after Russia said it would supply more gas to Europe.
Higher prices are only having a modest effect on US drillers, who added rigs for a fifth week in a row, but still well below their peaks.
The combined oil and gas rig count, an early indicator of future output, rose five to 533 in the week to Oct. 8, its highest since April 2020, energy services firm Baker Hughes said in its closely followed report on Friday.
While the total rig count is up 264 rigs, or 98 percent, over this time last year, the annual average rig count peaked at 1,919 in 2012 and hit a record low of 433 in 2020, according to Baker Hughes data going back to 1988.
US investment bank Piper Sandler this week forecast the rig count would rise to an average of 472 in 2021 and 599 in 2022 from 436 in 2020.