Oil demand is 'absolutely soaring' and the price will rise, analyst warns

Key Points
  • Analyst says oil market has tightened in last 3 months
  • Inventories said to be drawing at "phenomenal pace"
  • This month the IEA raised demand forecast for 2017
US fuel prices rise as Hurricane Harvey shutters more refineries

As the market wrestles with the fallout from Hurricane Harvey, the storm that that struck the coast of Texas on Friday causing widespread damage and flooding, at least one analyst says the wider picture for oil is for prices to grind higher.

The cost of a barrel of oil has gyrated around the $50 per barrel mark for some time and last month the International Energy Agency (IEA) said global demand will outpace previous estimates in 2017.

In August, the agency raised its 2017 demand growth forecast to 1.5 million barrels per day.

Amrita Sen, chief oil analyst at Energy Aspects agreed that more oil is being called upon and said the market has tightened significantly in the last three months.

"Particularly if you adjust for global oil demand growth, demand is absolutely soaring right now," she told CNBC Tuesday.

The analyst added that despite strong supply levels, the oil price should move higher.

"It should be going up because inventories have been drawing at a phenomenal pace over the past few weeks and months," she added.

The storm and the spread

Global oil markets are far more dependent on the U.S. Gulf Coast than in years gone by and the weather front currently disrupting the Houston area is rattling the price of both WTI and Brent.

At one stage, the storm stretched the discount of U.S. WTI versus Brent to more than $5 per barrel, the widest in more than two years.

In a note Tuesday, the commodities research team at Barclays said a widening spread is not just about Hurricane Harvey.

"Harvey has widened the Brent-WTI spread to almost $6, but North Sea maintenance, new disruptions, and higher U.S. output were already driving the spread wider," the note read.

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