Oil switched between gains and losses in choppy trading as investors assessed how a global power crisis will affect demand this winter.

Futures in New York traded in a US$2.15-range on Tuesday. So far, consumption is being supported ahead of the northern hemisphere winter by shortages of natural gas and coal, triggering a need for alternative power generation fuels such as diesel and fuel oil. Meanwhile, the International Monetary Fund expressed concern the global economic recovery has lost momentum.

“We don’t have a playbook for what happens when natural gas prices in Europe go to the equivalent to US$250-a-barrel in crude,” said Rebecca Babin, senior energy trader at CIBC Private Wealth Management. “The market’s trying to calibrate this new energy situation.”

Tuesday’s volatility comes as oil prices stabilize in the US$80-a-barrel range. Caution from the Organization of Petroleum Exporting Countries and its allies in restoring supply has pushed prices higher along with fuel switching. UBS Group AG raised its estimates for oil in both New York and London because of stronger demand from the power sector and reviving U.S. jet fuel consumption.

However, the IMF warned threats to growth have increased, pointing to the delta variant, strained supply chains, accelerating inflation and rising costs for food and fuel.

“There’s real damage that’s potentially lurking from the supply chain issues,” said John Kilduff, a partner at Again Capital LLC. “It’s a real potential negative for the global economy.”

Prices:

• West Texas Intermediate crude for November delivery rose 22 cents to US$80.73 a barrel at 11:55 a.m. in New York
• Brent for December settlement fell eight cents to US$83.57 a barrel
• Demand for fuel oil is rising in parts of Asia as soaring natural gas prices prompt switching to one of the most polluting forms of energy, according to TotalEnergies SE.

“What’s going on with gas may worry some Asian countries with emerging economies,” TotalEnergies Chief Executive Officer Patrick Pouyanne said Tuesday during the Evolen conference in Paris. “Some Asian countries are currently coming back to fuel oil, which may have an impact on the oil market.”

Still, the pace of oil’s surge, combined with rising prices of other energy commodities and metals is bringing on inflation and threatening to hit economies reviving from the pandemic slump. Industries in Europe are being forced to crimp or shut operations. That, in turn, could weigh on oil demand.

Other oil-market news
A top European official is expected to fly to Tehran as soon as this week to seek an agreement to restart nuclear talks between Iran and world powers after months of delays, officials with knowledge of the meetings said.

Offers for physical cargoes of thermal coal in China skyrocketed this week after reports of local outages and supply disruptions.
China’s widening power crisis, which has forced rationing across the country and threatens to derail economic growth, is prompting policy makers to rethink the pace of the nation’s energy transition.

--With assistance from Jack Wittels and Saket Sundria.