Oil tops $85 a barrel for the first time in three years as global energy costs soar

Energy crunch expected to boost oil demand by 500,000 barrels per day, says IEA

Oil demand has picked up with the recovery from the Covid-19 pandemic. Bloomberg

Oil prices hit a three-year high on Friday, climbing above $85 a barrel on forecasts of a supply deficit over the next few months as rocketing gas and coal prices stoke a switch to oil products.

Brent crude futures were up 80 cents, or 0.95 per cent, to $84.80 a barrel at 0930 GMT. Front-month prices, which earlier touched their highest since October 2018 at $85.10, are set to climb for the sixth straight week, heading for a 3 per cent hike this week.

US West Texas Intermediate crude futures rose 73 cents, or 0.9 per cent, to $82.04 a barrel. The contract is heading for a 3.3 per cent gain on the week, up for the eighth consecutive week.

Strong stock markets on both sides of the Atlantic, often traced by oil prices, also gave a boost.

Analysts pointed to a sharp drop in OECD oil stockpiles to their lowest level since 2015. Demand has picked up with the recovery from the Covid-19 pandemic, with a further boost coming from industry turning away from expensive gas and coal to fuel oil and diesel for power.

"The fact that Asian markets are content to chase prices higher at weekly highs, instead of lurking on price dips, is a strong signal that energy demand remains robust," Oanda senior analyst Jeffrey Halley said in a note.

The International Energy Agency on Thursday said the energy crunch is expected to boost oil demand by 500,000 barrels per day.

That would result in a supply gap of about 700,000 bpd through the end of this year, until the Organisation of the Petroleum Countries and allies, together called Opec+, add more supply, as planned, in January.

"We maintain the view that we have held all year – that the oil market remains in the early days of a multi-year, structurally strong cycle," RBC analyst Michael Tran said in a note.

Investors shrugged off a higher than expected gain in US crude stocks last week as refinery crude runs fell.

Crude inventories rose by 6.1 million barrels in the week to October 8 to 427 million barrels, compared with analysts' expectations in a Reuters poll for a 702,000-barrel rise, the Energy Information Administration said on Thursday.