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Brent crude hit a six-month high on the back of the continuing severe European winter weather, while concerns of rising tensions in Iran also added to supply concerns.
With temperatures plunging across Europe and Russia, Moscow has diverted its natural gas for exports for domestic usage, causing a shortage. European energy groups are turning to gas-oil for heating, and in Italy, power plants are to switch from gas to fuel oil, as a way of reducing gas consumption.
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ICE March Brent hit $116.70 a barrel, its highest level since last August. In European early afternoon trading, the global benchmark was up 5 cents at $115.88 a barrel.
The rise in heating oil demand has meant that refining margins have increased. The price differential between gas oil and Brent crude widened by 54 cents to $17.22 a barrel, suggesting a further rise in crude oil prices as refiners turn to buy more crude oil to meet demand.
“While a late season cold snap tends to pack less of a punch and gas oil stocks are generally healthy, a more severe cold period or consumer rush to buy may strain the European gasoil balance given a heavy first quarter refinery maintenance period,” said analysts at Deutsche Bank.
The current level of Brent in dollars per barrel is higher than March of last year and in euros per barrel, “it is higher than at the peak of the Libyan war,” said Olivier Jakob at oil consultants Petromatrix based in Switzerland.
With Japan also facing a colder than normal winter, as well as forecasts pointing to a colder than average February-April, demand for heating oil is expected to remain firm.
Fears of a ratcheting up of tensions between the west and Iran caused by US proposals of tightening sanctions also added to expectations of a further crude oil price rally.
Across the Atlantic, the West Texas Intermediate continued to weaken on oversupply worries. The Nymex March WTI fell 81 cents a barrel to $96.11. The fall in the US benchmark meant that the price differential between Brent and WTI jumped, hitting $20 for the first time since October. Read More
for detailed price charts.
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