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Futures Movers: U.S. oil futures post a nearly 5% weekly climb after touching highs above $80 a barrel

Oil futures rose on Friday, on track to score a roughly 5% gain for the week as U.S. prices touched highs above $80 a barrel for the first time in almost seven years, while natural-gas futures edged lower, pulling back from the nearly 13-year high seen earlier in the week.

U.S. benchmark crude prices rallied to a nearly seven-year high even though Russian President Putin announced on Wednesday Gazprom would increase natural-gas exports to Europe, while U.S. officials reportedly indicated no intention to release crude oil from the Strategic Petroleum Reserve, Marshall Steeves, energy markets analyst at IHS Markit, told MarketWatch.

Natural gas recently rallied to the highest close since 2008 on Tuesday as “European inventory levels stand at historically low levels ahead of the winter heating season,” he said. “This has supported the energy complex, due to the possibility that end-users could seek out oil substitutes like diesel and fuel oil.”

Read: Lofty prices for natural gas may fuel a swing back to oil as a power source

“Global crude and natural-gas inventories are tight, and production growth may not be sufficient to meet demand growth,” said Steeves.

West Texas Intermediate crude for November delivery
CL00,
+1.48%

CLX21,
+1.48%

rose $1.44, or 1.8%, to $79.74 a barrel on the New York Mercantile Exchange, after touching a high of $80.11, the highest intraday level for a front-month contract since November 2014, according to FactSet data. Friday’s move puts the U.S. benchmark on track for a 5.1% weekly gain, which would mark a seventh straight weekly rise.

December Brent crude
BRN00,
+0.12%

BRNZ21,
+0.12%
,
the global benchmark, rose $1.20, or 1.5%, to $83.15 a barrel on ICE Futures Europe, up 4.9% for the week. It was poised for a fifth straight weekly climb.

November natural gas
NGX21,
-1.51%

NG00,
-1.51%

fell by 6.3 cents, or 1.2%, to trade at $5.614 per million British thermal units, leaving it down about 0.1% for the week after a bout of volatility.

More broadly, there are three reasons why oil prices traded around their highest levels since 2014, said James Williams, energy economist at WTRG Economics.

The first is oil production “restraint” by the Organization of the Petroleum Exporting Countries, which has been “very conservative in adding to production for fear of another COVID-driven slowdown,” he told MarketWatch. The second is the “recovering economy,” with the U.S. doing better than the rest of the world, with its oil consumption now back to the level it was before the pandemic.

And third, “U.S. shale production growth has not been fast enough to return to 2019 levels as investment in new wells is slower,” said Williams. Exploration and production shareholders “want a more immediate return on their investment.”

Earlier this week WTI crude prices pulled back after marking their highest settlement since October 2014 on Tuesday, after the Financial Times reported that U.S. Energy Secretary Jennifer Granholm hinted at a possible tapping of the Strategic Petroleum Reserve and said she hadn’t ruled out a ban on crude exports. Oil reversed back to the upside though on Thursday after a news report that the Energy Department had said it had no plans “at this time” to tap the SPR.

“All the same, the idea of releasing strategic oil reserves will probably not be off the table entirely if oil prices continue to rise,” said Carsten Fritsch, commodity analyst at Commerzbank, in a note.

“In view of the current robust demand, which is likely to be additionally boosted by the switch from gas to oil, plus the restrictive OPEC+ production policy, the oil market will remain tight until year’s end,” he said.

Meanwhile, soaring natural-gas prices are seen adding to demand for crude, as gas-fired power plants, particularly in Asia, and other gas users switch to oil. Meanwhile, OPEC+ earlier this week stuck to its plans to increase crude production in monthly increments of 400,000 barrels a day, defying pressure to relax existing output curbs more quickly.

Read: Why the oil market is both bullish and ‘on edge’ after the OPEC+ oil output decision

As a result, Commerzbank raised its forecast for Brent crude prices in the current quarter to $85 a barrel from its previous forecast of $75, and lifted its first-quarter 2022 estimate to $75 a barrel from $70, Fritsch said.

Oil market bulls argued the price action remains tilted to the upside.

“For oil, the rally is susceptible to near-term profit-taking pullbacks due to bearish headlines, but the trend is decidedly higher here, underscored by the latest run to multiyear highs,” said analysts at Sevens Report Research, in Friday’s newsletter. “And, any pullbacks should be viewed as opportunities to add to long exposure whether it is though energy equities, ETFs, or futures contracts.”

Round out action on Nymex Friday, November gasoline
NGX21,
-1.51%

tacked on 1.7% to $2.374 a gallon, trading 5.5% higher for the week, while November heating oil
HOX21,
+0.63%

added 1.5% to $2.496 a gallon, poised for a 4.7% weekly climb.

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