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Oil prices surge; U.S. crude touches high above $80 a barrel

NEW YORK (Reuters) -Oil prices rose on Friday, up more than 4% on the week as a global energy crunch has boosted prices to their highest since 2014 and prompted China to demand increased coal production.

With global energy demand growing, OPEC and allied producers have said they would stay the course of gradually bringing back production cuts, and while the U.S. government said it was monitoring energy markets, it did not announce immediate plans for actions to lower prices.

U.S. benchmark West Texas Intermediate crude touched a high above $80 a barrel briefly.

"Oil prices are surging as the U.S. Department of Energy has backed off from plans that could curb prices by releasing SPR crude oil and banning U.S. crude exports," said Phil Flynn, senior analyst at Price Futures Group in Chicago. "There's not a lot of risk to being long" with bullish bets on oil futures, he said.

Energy markets have tightened in the face of improved fuel demand as economic activity rebounds from pandemic lows, and many fear that a cold winter could further strain natural gas supplies. China ordered miners in Inner Mongolia to ramp up coal production to alleviate its energy crunch.

"As other energy prices like natural gas and coal keep pushing higher, upside risks to the oil market have started to build," said Bank of America's Christopher Kuplent.

Brent crude futures rose 62 cents, or 0.6%, to $82.56 a barrel by 12:20 p.m. Eastern (1620 GMT) while U.S. West Texas Intermediate (WTI) crude futures rose $1.02 or 1.3% to $79.31 after briefly touching a session high of $80.11 a barrel, surpassing a nearly seven-year high of $79.78 touched earlier this week.

Earlier in the week, Brent hit a three-year high of $83.47.

The price run-up has been spurred by soaring European gas prices, which have encouraged a switch to oil for power generation, and a decision by the Organization of Petroleum Exporting Countries (OPEC) and allies led by Russia to stick to plans to add only 400,000 barrels per day (bpd) of supply in November.

Benchmark European gas prices at the Dutch TTF hub on Friday stood at a crude oil equivalent of about $200 a barrel, based on the relative value of the same quantity of energy from each source, according to Reuters calculations based on Eikon data.

"An acceleration in gas-to-oil switching could boost crude oil demand used to generate power this coming northern hemisphere winter," an ANZ commodities analyst said in a note.

ANZ increased its 2021 fourth-quarter crude oil demand forecast by 450,000 bpd.

The U.S. Department of Energy (DOE) said that all "tools are always on the table" to tackle tight energy supply conditions, which could include a release of oil stocks.

Reporting by Jessica Resnick-Ault and Dmitry ZhdannikovAdditional reporting by Roslan Khasawneh in Singapore and Sonali Paul in MelbourneEditing by David Goodman and David Gregorio


Oil prices scale $85/bbl on back of supply deficit

(Reuters) -Oil prices jumped to a three-year high above $85 a barrel on Friday, on forecasts of a supply deficit over the next few months, spurred by rising demand due to the easing of travel restrictions.

Brent crude futures were up 77 cents, or 0.9%, at $84.77 a barrel at 11:48 a.m. EST (1548 GMT). Front-month prices, which touched their highest since October 2018 at $85.10, were headed for a weekly rise of 3%, which would be their sixth straight weekly gain.

U.S. West Texas Intermediate (WTI) crude futures rose 87 cents, or 1.1%, to $82.19 a barrel. The contract is heading for a 3.5% gain on the week, up for the eighth consecutive week.

Demand has picked up with the recovery from the COVID-19 pandemic, with a further boost from power generators who have been turning away from expensive gas and coal to fuel oil and diesel.

The White House said it will lift COVID-19 travel restrictions for fully vaccinated foreign nationals effective Nov. 8, which should boost jet fuel demand.

Meanwhile, a sharp drop in OECD and U.S. oil stockpiles is expected to keep global supply tight.

"It will take a trifecta of events to derail this oil price rally: OPEC+ unexpectedly boosts output, warm weather hits the northern hemisphere, and if the Biden administration taps the strategic petroleum reserves," said Edward Moya, senior market analyst at OANDA.

The International Energy Agency on Thursday said the energy crunch is expected to boost oil demand by 500,000 barrels per day (bpd).

That would result in a supply gap of around 700,000 bpd through the end of this year, until the Organization of the Petroleum Countries and allies, together called OPEC+, add more supply, as planned in January.

Additional reporting by Shadia Nasralla in London, Sonali Paul in Melbourne and Florence Tan in SingaporeEditing by Mark Potter, Louise Heavens and David Gregorio

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'Revenge of the old economy' - copper, oil expected to run even higher

Oil could hit $90 a barrel and copper could see between $11,000 to $12,000 a tonne, said Goldman Sachs' Global Head of Commodities Research Jeff Currie on Bloomberg.

Currie's interview was released early this week.

Copper prices rose today on decades-low supplies and an extreme shortages, according to a report from Reuters. Three-month copper on the London Metal Exchange rose 1.5% to $10,351 a tonne. U.S. Brent Crude prices have more than doubled in the past year and traded above $85 a barrel today.

Metals are in a super cycle due to a confluence of events after the pandemic, and the resource sector can't keep up due to years of under investment.

"Poor returns in the old economy saw capital redirected away from the old economy and towards the new economy, basically taking from the Exxon's of the world and giving to the Netflix's of the world," said Currie.

With years of poor returns in the resource and energy space, investors are not investing anytime soon. Adding more oil supply from the U.S. is problematic, since oil producers haven't been investing, and getting them to invest is going to require a much higher oil price.

"Today the focus is on return on equity. The focus here is not on the dollar price of oil, but where [the energy investor's] stock price is and the access to capital," notes Currie.

Currie adds that environmental social governance hurdles create an even higher hurdle rate for getting oil producers to invest.

"There is a cost of capital associated with de-carbonization and we're going to find out what that cost is," said Currie.

High oil prices cascade into refining. Aluminum, which has high energy needs, has seen prices skyrocket. Zinc has also run up due to European smelters having to close.

"When the wind quit blowing, the market had to replace that wind power generation with natural gas, and there was no gas, which created a massive price spike," said Currie.

"[These] transient events are going to have higher probability and more frequent in nature. There is a persistency of transitory events."

Currie defines a super cycle as bottom up and driven by sweeping, structural policies, citing China's admission to the World Trade Organization in the 2000s or President Lyndon Johnson's War On Poverty in the '70s.

"Every commodity super cycle is driven by low income groups, as well as every bout of inflation," said Currie. "Inflation and commodity bull markets are directly tied to populist policies, and I can't find an exception to that."


Oil prices kitco

Kitco Gold Index (KGX)

When the US Dollar gets stronger, it takes fewer dollars to buy any commodity that is priced in $USD. When the US Dollar gets weaker it takes more dollars to purchase the same commodity.

The price of all US Dollar denominated commodities, like gold, will change to reflect the fact that it will take fewer or more dollars to buy that commodity. So it’s quite possible, in fact it’s almost always the case that a portion of the change in the price of gold is really just a reflection of a change in the value of the US Dollar. Sometimes that portion is insignificant. But often the opposite is true where the entire change in the gold price is simply a mathematical recalculation of an ever-changing US Dollar value.

When the dollar gets strong, gold appears to go down, and vice versa. That accounts for part of the fluctuations that we see in the value of gold.

The other part is an actual increase in the supply or demand for gold. If the price is higher when being measured not only in US Dollars, but also in Euros, Pounds Sterling, Japanese Yen, and every other major currency, then we know the gold demand is higher and it has actually increased in value.

Consequently, if gold is higher in US Dollars while at the same time cheaper in every other currency, then we can conclude that the US Dollar has weakened, and that gold has actually lost value in all other currencies. But the price, because it is being quoted in $USD will be higher and give the illusion of gold becoming more valuable. In such a case the devaluation of gold, due to increased supply on the market, is camouflaged by a weakened US Dollar.

Our feature on breaks the change of the price of gold into 2 components. One part shows you how much of that change can be attributed to US Dollar strength, or lack of it. The other portion is indicative of how much the price changed as a result of normal trading. Interestingly whatever changes happen to the price of gold as a result of US Dollar strength/weakness also occurs to every other US Dollar denominated commodity by the exact same proportion.

Do Oil Prices Still Predict Inflation?

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