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

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,
+1.61%

CLX21,
+1.61%
rose $1.05, or 1.3%, to settle at $79.35 a barrel on the New York Mercantile Exchange, after touching a high of $80.11.

Front-month contract prices for the U.S. benchmark finished at their highest since Oct. 31, 2014, according to Dow Jones Market Data. They settled up 4.6% for the week.

December Brent crude
BRN00,
+0.21%

BRNZ21,
+0.21%,
the global benchmark, rose 44 cents, or 0.5%, to $82.39 a barrel on ICE Futures Europe, up 4.9% for the week. It marked fifth straight weekly climb.

Both WTI and Brent crude marked their seventh weekly gain in a row.

November natural gas
NGX21,
-1.29%

NG00,
-1.29%
fell by 11 cents, or 2%, to settle at $5.565 per million British thermal units, leaving it down 1% for the week after bouts of volatility. Prices have still more than doubled year to date.

Read: Fertilizer prices soaring as natural gas rally adds to ‘perfect storm’

More broadly, there are three reasons why U.S. 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.”

Data from Baker Hughes
BKR,
+1.71%
on Friday, however, showed a fifth straight weekly rise in the number of U.S. rigs drilling for oil, up 5 at 433 this week, implying an upcoming increase in output.

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 were 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.

Round out action on Nymex Friday, November gasoline
NGX21,
-1.29%
tacked on 1.4% to $2.366 a gallon, ending 5.2% higher for the week, while November heating oil
HOX21,
+0.63%
added 0.6% to $2.474 a gallon, for a 3.8% weekly climb.