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Crude oil futures pause rally but tight supply, strong demand outlook remains

0300 GMT: Crude oil futures were stable to lower in mid-morning trade in Asia Oct. 12 after a sustained rally, with expectations of tight supply and strong demand set to continue supporting prices in the near term.

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At 11 am Singapore time (0300 GMT), the ICE December Brent futures contract was down 7 cents/b (0.08%) from the previous close at $83.58/b, while the NYMEX November light sweet crude contract was 13 cents/b (0.16%) lower at $80.39/b.

"Oil prices may be taking a breather today after surging more than 20% since late August on tighter oil supplies and increasing demand," IG market strategist Yeap Jun Rong told S&P Global Platts Oct. 12, adding that prices were still above $80/b and expectations of a near-term uptrend remain intact.

Other analysts said the oil market continued to be supported by high gas and coal prices that raise the prospect of more switching to oil for power generation.

"Energy crisis uncertainty will likely keep crude prices heading higher until the oil market seems likely it is heading toward balance," OANDA senior market analyst Edward Moya said in a note. "The natural gas shortage is not going away anytime soon and that will keep providing additional demand for crude," he added.

Tightened US supply has supported prompt-month WTI prices and contributed to the widening backwardation of the WTI forward curve. Front-month WTI settled at a $7.33/b premium to the year-ahead contract Oct. 11, the widest backwardation since mid-July.

ANZ research analysts in a note Oct. 12 raised their 2021 oil demand forecast by 450,000 b/d amid continuing recovery in transportation fuel requirements as pandemic mobility restrictions ease across the globe.

"Demand is improving in China, while easing restrictions in other countries are keeping oil demand prospects strong. Transportation fuels are leading the charge as consumers return to the road. High gas prices are inducing gas-to-oil switching in heating and industrial sectors," the ANZ analysts said.

OCBC Treasury Research in a note remained skeptical about Brent reaching $100/b after it touched $84.60 in intraday trade Oct. 11, saying it was more likely to top out around $85/b.

Analysts surveyed by Platts Oct. 11 estimated US commercial crude stocks fell 500,000 barrels to 420.4 million barrels in the week ended Oct. 8.

Inventories typically climb around 3 million barrels/week during the period, US Energy Information Administration data shows, as refinery runs slow amid shoulder season maintenance. The expected counter-seasonal draw would leave stocks 7.7% behind the five-year average in the next EIA weekly report, which is due for release mid-week.