Oil’s jump through $85 shows spillover effect of energy crisis

Bloomberg

The global energy crisis is bleeding into the oil market.
Brent crude surged as high as $85.10 a barrel, a price that would have seemed unthinkable just 18 months ago, when Covid halted global mobility and trashed demand.
An underlying recovery in consumption — driven by road-fuel, freight activity, and latterly air travel — is now being fired by the energy crisis. With natural gas trading at close to $200 in per-barrel terms in Europe, the consensus among analysts is that oil demand globally will be boosted by a further half a percentage point as companies rush to secure any fuel that can be used as a substitute, from diesel to fuel oil to crude. To outsiders, such a shift might seem tiny. In practice it’s transformative, exceeding a month’s output increases that the Organization of Petroleum Exporting Countries (Opec) and its allies are aiming to bring to a market that was already churning through its stockpiles.
“The situation is tight and Opec is overtightening,” said Gary Ross, a veteran oil consultant turned hedge fund manager at Black Gold Investors LLC. “The broader energy problem is making things worse because you’re getting substitution on top of seasonal demand increases.”
Oil refiners are making as much money as at any time since the pandemic began. Gasoline margins in the US are rallying at a time of year when they’d normally fall. In Europe, profits from making diesel are the highest since March 2020, while propane and low sulfur fuel oil prices have been rocketing to their highest since 2014.
Nowhere is the strength in oil clearer than in the futures curve, used by traders to wager on the health of the market. Nearby prices are trading at their biggest premiums to those further out in years, with the closely watched Dec-Red-Dec spreads on Brent crude and European diesel both at their strongest since 2013.