Brent edges towards three-year high on energy crunch fears

London — Oil rose towards $84 a barrel on Tuesday, within sight of a three-year high, supported by a rebound in global demand that is contributing to energy shortages in big economies such as China.

With demand growing as economies recover from pandemic lows, Opec and allied producers, collectively known as Opec+, are sticking to plans to restore output gradually rather than boost supply quickly.

“Opec+ will push ahead with its cautious approach to supply in the year-end period. Set against this backdrop, oil bears will remain in hibernation mode,” said Stephen Brennock of oil broker PVM.

Brent crude was up 17c, or 0.2%, at $83.82 a barrel by 10am GMT. On Monday it reached $84.60, the highest since October 2018. US oil gained 8c, or 0.1%, to $80.60, having hit its highest since late 2014 on Monday at $82.18.

Jeffrey Halley, analyst at brokerage Oanda, said the lack of noteworthy change in prices on Tuesday could be because the market looks overbought based on short-term technical indicators such as the relative strength index.

“It would not surprise me in the least if we saw a sharp sell-off of $5 to $8 a barrel at some stage this week,” he said.

The price of Brent has surged by more than 60% this year. Besides Opec+ supply restraint, the rally has been spurred by record European gas prices, which have encouraged a switch to oil for power generation.

European gas at the Dutch TTF hub stood on Tuesday at a crude oil equivalent of about $169 a barrel, based on the relative value of the same amount of energy from each source, according to Reuters calculations based on data compiled by Eikon.

Power prices have surged to record highs in recent weeks, driven by widespread energy shortages in Asia, Europe and the US. The energy crisis affecting China is expected to last through to the end of the year.

With prices rising, Opec+ has come under pressure from consumer nations. A US official on Monday said the White House stands by its calls for oil-producing countries to “do more”.