Oil prices scale $85 a barrel on back of supply deficit

Oil prices jumped to a three-year high above $85 a barrel on Friday, on forecasts of a supply deficit over the next few months, spurred by rising demand due to the easing of travel restrictions.

Brent crude futures were up 77 cents, or 0.9%, at $84.77 a barrel at 11:48 a.m. EST (15:48 GMT). Front-month prices, which touched their highest since October 2018 at $85.10, were headed for a weekly rise of 3%, which would be their sixth straight weekly gain.

U.S. West Texas Intermediate (WTI) crude futures rose 87 cents, or 1.1%, to $82.19 a barrel. The contract is heading for a 3.5% gain on the week, up for the eighth consecutive week.

Demand has picked up with the recovery from the COVID-19 pandemic, with a further boost from power generators who have been turning away from expensive gas and coal to fuel oil and diesel.

The White House said it will lift COVID-19 travel restrictions for fully vaccinated foreign nationals effective Nov. 8, which should boost jet fuel demand.

Meanwhile, a sharp drop in OECD and U.S. oil stockpiles is expected to keep global supply tight.

"It will take a trifecta of events to derail this oil price rally: OPEC+ unexpectedly boosts output, warm weather hits the northern hemisphere, and if the Biden administration taps the strategic petroleum reserves," said Edward Moya, senior market analyst at OANDA.

The International Energy Agency on Thursday said the energy crunch is expected to boost oil demand by 500,000 barrels 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 the Petroleum Countries and allies, together called OPEC+, add more supply, as planned in January. 

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