Oil prices reversed early losses to extend gains on Tuesday into a fourth day amid a rebound in global demand that is contributing to energy shortages in major economies.
Brent crude was up 21 cents or 0.3% at $83.86 a barrel at 0632 GMT, the highest in three years, after rising 1.5% on Monday.
U.S. oil gained 13 cents or 0.2% to $80.65 a barrel, a seven-year high, having also gained 1.5% in the previous session.
Crude oil is being “swept up in the broader rally across the energy sector,” said James Whistler, global head of energy derivatives at SSY in Singapore. “High gas and coal prices are raising the prospect of more switching to oil for power generation.”
Switching to oil from natural gas for power production may boost global demand for crude by between 250,000 to 750,000 barrels per day, analysts have estimated.
Power prices have risen to records in recent weeks, driven by energy shortages in Asia, Europe and the United States.
In China, where major industrial regions are grappling with the power shortages, the government on Tuesday announced it would fully liberalise the country’s thermal power market.
Thermal coal futures were also on the rise again with prices in China gaining more than 10%.
Higher energy prices are also adding to inflationary pressures in recovering economies. Japan’s wholesale inflation was at a 13-year high in September, data showed on Tuesday.
“There is still plenty of momentum behind the oil rally and the fundamentals remain extremely favourable,” said Craig Erlam, senior market analyst at OANDA. “Will it be a surprise to see oil back in the triple digits later this year? Probably not.”
Qatar, the world’s biggest producer of liquefied natural gas (LNG), on Monday told customers it was unable to help take the spark out of energy prices and supply more fuel to the market.
“We are maxed out, as far as we have given all our customers their due quantities,” said Qatar energy minister Saad al-Kaabi. “I am unhappy about gas prices being high.”