The ongoing global energy crisis is spilling over the oil market, analysts said. Soaring gas and coal prices are expected to prompt end-users, especially utilities, to switch to oil products. These expectations drove Brent prices to $85.10 per barrel on Friday. Oil prices have been in a rally in recent months thanks to the recovery in road transport, manufacturing activity, and freight. Now, power producers are expected to burn more barrels of oil to meet demand this winter as prices of gas and coal soar.
In Europe, oil product demand is rising thanks to improving mobility. Oil products deliveries indicated gasoline demand exceeded pre-pandemic levels in Spain in September. Meanwhile, diesel use was just 0.5% below the pre-pandemic levels. The International Energy Agency estimates that global gasoline demand is now just 2% lower than pre-pandemic levels. Even the aviation sector has shown some signs of gradual revival. Europe’s air travels are now just 25% below normal levels, up from 50% in June.
Nevertheless, high energy prices are expected to bring unwanted economic consequences. China’s manufacturing activity contracted in September for the first time since the pandemic began. Beijing has allowed power producers to raise prices which are expected to stoke inflation. In Europe, energy-intensive industries have been forced to slash or idle their operations due to skyrocketing energy costs.
Meanwhile, OPEC+ producers have decided to stick to their plan to cautiously increase supplies despite rising prices and the improving demand outlook. The group appears to be ignoring calls from consuming countries for more supplies.
