Brent closed at the highest in nearly three years amid signs the crude market is rapidly tightening from a global energy crunch.

Brent failed to break $80 because some speculators were taking profits, said Bob Yawger, director of the futures division at Mizuho Securities. “We should look for the market to reload and give the $80 level another shot in coming days.”

Crude is rallying on signs that inventories globally are falling sharply, with demand heating up ahead of winter and OPEC+ only slowly adding barrels back to the market. As traders eye the prospect of large market deficits, Trafigura said longer-dated oil prices remain cheap at around $70 a barrel. So-called timespreads, which gauge market strength, have rallied sharply in recent weeks in another sign that traders are positive about the outlook.

“Observable inventory draws are the largest on record,” Goldman Sachs analysts including Damien Courvalin wrote in a note to clients. “This deficit will not be reversed in coming months, in our view, as its scale will overwhelm both the willingness and ability of OPEC+ to ramp up.”

Meanwhile, OPEC+ is scheduled to meet on Oct. 4. to review its output policy. Internal documents from the group have already highlighted the risk of the natural gas crisis ramping up demand. World oil consumption could be boosted by an additional 370,000 barrels a day — roughly 6% of expected growth — if gas prices stay high for an extended period, according to the group.

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Oil rose for the fifth straight week with the global energy crunch set to boost demand for crude as stockpiles decline from the U.S. to China.

Futures in New York gained 2.8% this week. The global benchmark Brent settled at the highest in nearly three for the second day in a row. Global onshore crude supplies sank by almost 21 million barrels last week, led by China, according to data analytics firm Kayrros, while U.S. inventories are near a three-year low. The surge in natural gas prices is expected to force some consumers to switch to oil, tightening the market further ahead of the northern hemisphere winter.

“The market is pricing in a prolonged impact of supply disruptions, and the likely storage draws that will be needed to fulfill refinery demand,” said Louise Dickson, oil markets analyst at Rystad Energy, in a note. In terms of oil demand, “no new lockdowns in Europe, robust recovery in China road activity, and the U.S. nixing its ban on foreign travelers from November 2021, all lift prospects for upside in the coming quarters.”

Oil has steadily climbed higher this month after a period of Covid-induced demand uncertainty, with some of the world’s largest traders and banks predicting prices may climb further amid the energy crisis. Global crude consumption could rise by an additional 370,000 barrels a day if natural gas costs stay high, according to the Organization of Petroleum Exporting Countries.

Various underlying oil market gauges are also pointing to a strengthening market. The key spread between Brent futures for December and a year later is near $7, the strongest since 2019. That’s a sign traders are positive on the market outlook. Money managers increased their bullish ICE Brent bets positions to the most in six months, indicating many believe there’s yet more room for crude prices to climb.

Meanwhile, China sold crude oil from its strategic petroleum reserves for the first time via auction in a historic effort to curb raw materials prices, with a unit of PetroChina Co. Ltd. and Hengli Petrochemical Co. Ltd. securing volumes.

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Futures in New York rose 2.5% on Wednesday. Domestic crude stockpiles fell for a seventh straight week to about 414 million barrels, according to an Energy Information Administration report. Meanwhile, U.S. equities gained as concerns about China Evergrande Group’s debt woes eased. The bullish news overshadowed Federal Reserve officials signaling they would probably begin tapering their bond-buying program soon. “The focus is back on supply and demand,” said Phil Flynn, senior market analyst at Price Futures Group Inc. “The market looks very bullish and has the potential to be under supplied. There is real concern about demand going into the winter season.”

Crude prices have increased this month after extreme weather disrupted U.S. supplies, and as a rally in natural gas spurred expectations consumers may switch to oil for power generation. Crude may surge to $90 a barrel of the approaching winter in the northern hemisphere proves colder than normal, according to Goldman Sachs Group Inc. In physical markets, Mars crude slid for the second day as supplies of the medium sour grade are set to improve with the return of a critical pipeline in the Gulf of Mexico. Discounts for Heavy Louisiana Sweet also fell to the widest in more than a year as offshore production was restored by refineries in Louisiana remained offline due to storm-related damage.

The EIA data also showed U.S. gasoline inventories unexpectedly rose by 3.47 million barrels last week as U.S. Gulf Coast refineries ramped up operations after recent storms, but gasoline future managed to rise.

Oil ended modestly higher after a choppy session as concerns over growing tight supply outweighed fears over the state of China’s economy.

Futures in New York closed 0.4% higher, posting the first gain in nearly a week as traders focused on supply constraints in the U.S. Gulf of Mexico following lasting damage from Hurricane Ida. These trumped worsening financial troubles at China’s  Evergrande Group, which could spill into the rest of the property sector and threaten the country’s economy. “There are supply issues all around the market,” said John Kilduff, a partner at Again Capital LLC.

Oil has resumed its advance over the past month, in part due to a tightening of the market following lingering supply disruptions from U.S. storms. At the same time, consumption is coming into focus in anticipation that soaring natural gas prices will force a shift toward oil. Meanwhile, the lifting of U.S. travel restrictions could add as much as 200,000 barrels a day of jet fuel demand, according to Energy Aspects Ltd.

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Oil declined amid growing concerns over the health of China’s economy that have triggered massive losses in equities.

U.S. crude futures slid 2.3% to settle at the lowest level in more than a week as worries mounted over a possible implosion in the Chinese property sector that could impact the Asian giant’s appetite for crude. A stronger U.S. dollar is also making commodities priced in the currency less attractive. “China is the global swing demand center,” said John Kilduff, a partner at Again Capital LLC. “If we lose China, we will lose much of the recent oil price gains.”

Crude prices have fared well so far this month — U.S. oil futures are up about 4% in September — in part due to lingering supply disruptions from storms that have swept through the U.S. Gulf of Mexico. Royal Dutch Shell Plc said some critical U.S. Gulf of Mexico oil-production assets for Mars crude supply will be out of service for the rest of this year.  While oil fundamentals are pointing to higher prices, a planned U.S. Federal Reserve meeting this week could signal the central bank is moving toward scaling back asset purchases, possibly weakening global crude oil benchmarks.

Investors are also continuing to monitor the energy crunch in Europe amid talk of switching from gas to oil. There are expectations diesel demand will expand in Asia during winter, while the use of oil to generated power in the U.S. may jump.

Prices have steadily climbed since late August and were given a further boost when Hurricane Ida shut down a chunk of U.S. Gulf Coast offshore oil production. Meanwhile, the latest analysis from the Organization of Petroleum Exporting Countries shows a looming supply crunch in the summer of 2022. OPEC’s analysts now see global oil demand increasing by 4.15 million barrels a day in 2022, compared to the level expected for this year, an upward revision of 860,000 barrels a day from what they forecast a month ago.

U.S. supply restraints have caused Brent and WTI benchmark crude’s so called times preads to strengthen. WTI crude for December delivery settled at $6.23 a barrel higher than that for supply in the same month next year. That’s the biggest premium in more than a month.

The Energy Information Administration report also showed that national gasoline and distillate inventories each declined by nearly 2 million barrels. A sharper drop would have likely occurred had petroleum consumption not been affected by recent U.S. Gulf Coast storms.

Additionally, offshore natural gas production has been slow to recover since the recent storms, causing prices to rally. That might prompt power companies to use petroleum products such as fuel oil to run as feedstock in their plants, according to Sallee. “That will buoy crude prices even higher,” he said.

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