U.S. oil prices rise as demand picks up

MELBOURNE Reuters - Oil prices climbed on Friday, heading for gains of more than 2% for the week, on increasing signs of tight supply over the next few months as rocketing gas and coal prices stoke a switch to oil products.

U.S. West Texas Intermediate crude futures were up 30 cents, or 0.4%, to $81.61 a barrel at 0156 GMT, adding an 87 cent rise on Thursday. The contract would see a 3% gain for the week.

Brent Crude Futures rose 28 cents, or 0.3%, to $84.28 a barrel, after picking up 82 cents in the previous session and raising the contract for a 2.3% rise for the week.

Analysts pointed to a sharp drop in crude oil stocks by the OECD, at their lowest level since 2015. Demand has picked up with recovery from the COVID-19 pandemic, with a further boost coming from industry turning away from costly gas and coal to fuel oil and diesel for power.

This energy crisis, particularly in coal and gas, has really benefited the energy complex and oil has pushed up a huge value as a result, said Commonwealth Bank commodities analyst Vivek Dhar.

The International Energy Agency said the energy crunch is expected to increase oil demand by 500,000 barrels of burning 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 Petroleum Countries and allies, together called OPEC add more fuel, as planned in January.

You are looking at a window where things can tighten considerably, but it's going to be very temperature-dependent, Dhar said.

RBC Capital Markets analysts said the global oil market is shaping up for a strong bull cycle, containing supply tightening and demand strengthening at the same time.

The RBC analyst maintained the position that we have held all year that oil market remains in the early days of a structurally strong cycle, RBC analyst Michael Tran said in a note.