Brent rallies above $85 amid ongoing energy crunch

Oil prices have gained as Hong Kong coal futures rally, rising 9%

Filling station signs in Schwerte, Germany. Prices are expected to remain elevated amid a cautious approach by Opec+. AFP

Brent, the international benchmark under which two thirds of the world's oil trades, rose above $85 a barrel at the start of the trading session on Monday, amid continued energy shortages in Europe, China and the rest of Asia.

The benchmark was trading 0.94 per cent higher at $85.66 per barrel at 4.19pm UAE time. West Texas Intermediate, which tracks US crude grades, was up 1.51 per cent at $83.52 per barrel.

The benchmarks rallied on the back of a surge in Hong Kong coal futures, which jumped 9 per cent on Monday.

"With no signs of the China energy crunch alleviating soon, and with the rest of Northern Asia and Europe competing for scarce energy supplies, particularly gas, the price environment for oil remains constructive," said Jeffrey Halley, senior market analyst for the Asia-Pacific region at Oanda.

Prices are expected to remain elevated amid a cautious approach by Opec+, which has so far stayed the course on its oil policy.

The group, which is led by Saudi Arabia and Russia, has not succumbed to US pressure to increase production levels to ease the pressure on consumers.

The group has so far continued to incrementally add 400,000 barrels per day as part of a wider plan to add 2 million bpd back to the markets by the end of the year.

However, demand is expected to keep rising amid an continuing recovery in several parts of the world, which is expected to fuel the rally in prices.

"Recovering demand across Asia as Covid-19 restrictions are unwound has spurred a fresh wave of import demand, including from India amid ongoing refinery works," Energy Aspects said in a note.

"The slump in Chinese exports means Asia’s refiners will have to raise runs to fill the gap but this likely will not materialise until November after autumn turnarounds."

The current energy crisis and record natural gas prices are expected to boost oil demand by 500,000 bpd, according to the monthly oil market analysis released by the International Energy Agency.

Global shortages of natural gas are driving up demand for crude and placing yet more pressure on strained oil supplies, the Paris-based agency said. This, in turn, is helping to feed rising inflation and slow the world's recovery from the Covid-19 pandemic.

Natural gas prices are more than 90 per cent higher on a yearly basis. The Henry Hub price for natural gas was down 0.81 per cent at $5.365 per million British thermal units on Monday.