8:55 AM EDT, 10/25/2021 (MT Newswires) -- Oil rose to new seven-year highs early on Monday as demand continues to outstrip supply as the recovery from pandemic lows continues while fuel switching saps inventories amid high prices for coal and natural gas in Europe and Asia.
West Texas Intermediate crude for December delivery was last seen up US$1.04 to US$84.80 per barrel, the highest since the fall of 2014. December Brent crude, the global benchmark, was up US$0.74 to US$86.27.
Goldman Sachs on Monday said it believes oil demand has risen to 99-million barrels per day and will soon recover to pre-pandemic levels of 100-million bpd on rising demand from Asia, with fuel switching adding up to one-million bpd of additional demand, keeping inventories falling until mid-2022.
"After 18 months of COVID related downside risks to oil demand, gas-to-oil substitution is now a clear winter tailwind," the investment bank said in a report. "Gas spot and forward prices in Europe and Asia continue to signal significant switching potential, as the market prices demand destruction to preserve gas and coal inventories ahead of winter."
The increase in demand is not being met with sufficient supply, with OPEC+ adding just 0.4-million bpd monthly while investor-owned producers hold off on raising spending on new wells as their shareholders demand higher returns through dividends and share buybacks.
In its report, Goldman Sachs also said it expects Brent oil prices will need to reach US$110 per barrel before demand destruction will begin to affect the market.