Crude oil has been hit by two dominating factors this year, which led to it rallying to multi-year highs and trading above levels fundamentals could not justify. One, an energy crunch due to coal and natural gas shortage. And two, the global economic recovery and a faster rebound in demand than what oil-producing nations expected.
Oil traded just below multi-year highs on Friday with bullish sentiment about low supplies tamped by concerns from world leaders that demand disruptions from the COVID-19 pandemic may not be over.
Brent crude futures rose 92 cents, or 1.1 percent, to settle at $85.53 a barrel. The benchmark, which touched a three-year high of $86.10 on Thursday, was up 1 percent in the week, its seventh weekly gain.
US West Texas Intermediate (WTI) crude futures gained $1.26, or 1.5 percent, to settle at $83.76 a barrel, not far off a seven-year high hit this week. The contract gained 1.7 percent on the week and was up for a ninth straight week.
Prices have been boosted by worries about coal and gas shortages in China, India and Europe, spurring some power generators to switch from gas to fuel oil and diesel.
Also Read | Natural gas prices fall 19% from multi-year highs in US; why and what it means for India
Winter weather in much of the United States is expected to be warmer than average, according to a National Oceanic and Atmospheric Administration forecast.
US crude found support this week as investors eyed low crude stocks at the US storage hub in Cushing, Oklahoma.
US Energy Information Administration data on Wednesday showed crude stocks at Cushing fell to 31.2 million barrels, their lowest level since October 2018.
"America's gasoline demand appears to be experiencing an Indian summer," PVM analysts said in a note, pointing to the highest implied demand for this time of year since 2007 despite high pump prices.
"Supply is still very, very tight, the market is just cautious about the possibility of an uptick in COVID cases in Russia, China and now Germany," said Phil Flynn, senior analyst at Price Futures Group in Chicago.
Prices pulled back from earlier intraday highs after German Chancellor Angela Merkel said the pandemic is not yet over.
Federal Reserve Chairman Jerome Powell said he could not rule out another COVID-19 spike this winter.