Oil rises, but Middle East’s hot weather can boost it more
Economies reopening after lockdowns and a consequent rise in travel have lifted crude oil prices to levels last seen years ago. Analysts say that the weather can push them even higher.
In the Middle East, summer is hot. It is peak power consumption season as air conditioners become necessary. According to Bloomberg, in 2021, consumption will be even higher than usual due to higher temperatures.
Oil prices climbed on Friday to new multi-year highs. Brent crude futures boosted by 13 cents to $72.65 a barrel a day after closing at their highest since May 2019.
Meanwhile, U.S. West Texas Intermediate (WTI) crude futures gained 14 cents to $70.43 a barrel, a day after their highest close since October 2018.
The report remarks electricity consumption in Kuwait, which this week reached a new record as summer started earlier than usual. According to the report, in 2020, Saudi Arabia burned 25% more crude for electricity production than expected. The Kingdom also announced at the time that it may need to add 1 million BPD to its domestic consumption for electricity generation purposes.
The report implies this could push oil prices higher. Higher costs would be welcome for OPEC members, especially those in the Middle East. However, it would also prompt buyers to look for alternative suppliers offering better bargains.
High temperatures in the Middle East would challenge the region’s power grid
According to the International Energy Agency, OPEC+ oil producers would need to increase output to meet demand set to reach pre-pandemic levels by the end of next year.
Anz analysts announced that even the jet fuel market shows signs of improvement, with flights in Europe growing 17% over the past two weeks.
Higher summer temperatures in the Middle East would challenge the power grid. However, it is unlikely to affect oil markets much or for very long. Rates are already high enough to make some buyers nervous. If they increase higher, they will dampen demand, and nobody wants this just when it is recovering so well.
