Oil prices extended gains yesterday riding higher on growing fuel demand and crossing $76 for the first time since July this year.

The rally was fuelled by huge the United States crude inventories drawdown as well as production challenges in the Gulf of Mexico.

Precisely, Brent crude, Nigeria’s oil benchmark, rose nine cents, or 0.1 per cent, to $76.28 a barrel, while West Texas Intermediate (WTI) crude was up four cents, or 0.1 per cent, to $72.27 a barrel, after data from the U.S. Energy Information Administration (EIA) showed the country’s crude stocks till September 17 fell by 3.5 million barrels to 414 million, the lowest total since October 2018.

Several OPEC+ countries, including Nigeria, Angola and Kazakhstan have struggled in recent months to raise output due to years of under-investment or maintenance work delayed by the pandemic.

However, there have been assurances by the Minister of State, Petroleum Resources, Chief Timipre Sylva as well as the Group Managing Director of the Nigerian National Petroleum Corporation (NNPC), Mallam Mele Kyari, that the technical challenges were being fixed.

Both Nigerian oil industry leaders further noted that by the end of October or mid-November, the country would be able to meet its monthly allocation by the Organisation of Petroleum Exporting Countries (OPEC) and the country has written the cartel for a higher baseline.

Kyari recently said that as a resource-dependent nation, Nigeria was most comfortable with a price band between $50 to $60 per barrel.

In a sign of strong fuel demand as travel bans ease, East Coast refinery utilisation rates in the United States rose to 93 per cent, the highest since May 2019, the EIA data showed. However, before declining, Brent crude had hit $76.50 a barrel, the highest since mid-July on last week’s massive crude stock draws worldwide, particularly of floating storage.

On its part, Goldman Sachs has predicted that Brent could reach $90 per barrel if the weather in the northern hemisphere turns out to be colder than normal this winter, which is $10 per barrel more than its current forecast.

The call for higher oil prices would come on top of the already too-high natural gas prices, which have sunk some natural gas power providers in Europe as industry leaders, including the NNPC, insist that the natural gas situation will have a spill-over effect on the oil market. The projection is that with natural gas in short supply, there would be more focus on crude oil as one of the only viable alternatives since wind and solar power are proving insufficient at this time.

According to Goldman, a colder winter in Europe and Asia would have a profound effect on natural gas and oil demand, earlier this week, predicting that a colder winter could lead to 900,000 bpd in additional oil demand.

Meanwhile, global commodity trading firm, Trafigura is maintaining its forecast for oil prices to potentially hit $100 per barrel late next year, despite the risk of short-term Covid-19 headwinds heading into the northern hemisphere winter.

Trafigura predicted earlier this year that crude prices were likely to return to $100, something the company said could happen “probably towards the back end of next year if conditions are right”. The recovering oil market poses a new kind of challenge for discipline in the OPEC+ group of producers, as, “Those who want to produce more, can’t, and those who can, don’t want to,” according to Trafigura.”

Signs of a tightening market were the result of an ongoing recovery in demand and the risk that high gas prices could have a knock-on effect on oil markets due to switching to fuels other than natural gas.

OPEC members and allies known as OPEC+ are expected to meet in early October to decide whether to allow more production or continue with its current 400,000 bpd addition which it earlier agreed upon in July.

In a related development, despite the widespread belief that the ongoing crisis in the natural gas industry might hugely impact prices of crude oil, OPEC has said the effect will be marginal, given its own scenario analysis.

In a document obtained by THISDAY yesterday, titled: “Brief on Potential Impact of Recent Higher Natural Gas Prices on Global Oil Demand,” the oil producers’ group, noted that the study was necessary given the recent rise in global natural gas prices, and the current low levels of natural storage in various hubs.

Various industry experts and institutions, including the Nigerian National Petroleum Corporation (NNPC), recently made statements to the effect that the rising gas prices might lead to its substitution with other fuels, especially petrol, resulting in higher crude oil prices by $10, according to the national oil company.

Natural gas serves as a fuel for industry, mainly for power generation in manufacturing, refining and petrochemicals and residential sectors, but the report focused only on potential implications for industry because of the technical limitations it poses for residents.

It noted that recently, natural gas spot prices have risen sharply in the United States to reach $5.17/mmbtu on 20 September, compared with $1.34/mmbtu a year ago, due to freezing weather seen in the first half of the year and supply disruptions due to extreme weather conditions, in particular Hurricane Ida.

In Europe, prices have also soared on myriad factors, including harsher winter season seen in the H1, 2021, interruptions of supplies from Russia, concerns about the slow certification process of Russia’s Nord Stream 2 gas pipeline to Europe, lower-than-average storage levels, record prices for carbon emissions, and limited renewable power output.

Compared with $4/mmtu a year ago in South-west Europe, Liquefied Natural Gas (LNG) prices have soared to $25.70/mmbtu as of 20 September, according to Energy Intelligence, while current natural gas prices in Europe are equivalent to $150/b of crude oil.

The in-house document showed that hikes in natural gas prices incentivise substitution to more affordable fuels, indicating that switching from natural gas to LPG was already taking place as evidenced by reports of some refineries already feeding their furnaces with refinery LPG instead of natural gas.

OPEC stated that an important underlying assumption in its September 2021 market report is that weather conditions forecast for the upcoming winter months would be normal in line with the average of the past 20 years.

However, it noted that assuming a harsher winter in the upcoming winter months, which is from October 2021 through March 2022, it will sustain natural gas prices at high levels and incentivise more fuel switching from natural gas to fuel oil.

But the cartel noted that switching is expected only in certain parts of Europe and Asia, where movement from gas-fired to oil-fired power plants in the power generation sector and from natural gas to heating fuel, might occur.