Oil prices continued their rally on Tuesday and are trading above $80 per barrel for the second day amid a global shortage in the supply of energy.
Brent rose to $83.90 per barrel, up 0.30 per cent at 12.03pm UAE time while West Texas Intermediate was up 0.20 per cent at $80.68 per barrel.
"Oil prices powered higher overnight with Brent crude nearing $85 and WTI $82 a barrel as the Asia rally continued into New York," said Jeffrey Halley, senior market analyst for Asia Pacific at Oanda.
The rally comes amid a widespread energy crisis spurred by a shortage of oil and gas in Europe ahead of the winter season.
Oil is at a three-year high, with natural gas up nearly 84.69 per cent year-to-date amid disruptions in global supply chains as well as underinvestment in the commodities.
Natural gas prices fell 1.37 per cent to reach $5.27 per million British thermal unit on Tuesday.
Rising energy prices have prompted several banks to revise forecasts. UBS raised its expectations for oil prices by $5 per barrel, expecting Brent and WTI to average $80 per barrel and $77 per barrel, respectively, over the next 12 months.
"Record-high natural gas prices in Europe and Asia are likely to translate into higher use of fuel or crude oil in the power sector in 4Q21 and 1Q22, primarily in Asia but also in Europe," said Giovanni Staunovo, strategist at UBS.
The opening up of the US, the world's largest producer of oil and gas, to vaccinated tourists is also likely to push demand higher.
"We assume about 500,000 barrels per day of additional oil demand due to a switch from natural gas to oil, and 100,000bpd of additional oil demand from more flights to the US in 4Q21 and 1Q22," Mr Staunovo said.
Oil demand is likely to reach pre-pandemic levels of 100 million bpd as early as December, according to UBS.
Economists such as Nouriel Roubini also foresee a rally in crude prices. The chairman of Roubini Macro Associates expects Brent futures to reach $100 per barrel by year-end amid continued pressures on supply.
A global economy rapidly transitioning away from fossil fuels could continue to weigh on the prices of fossil fuels, sustaining the current rally, he said.
"We all care about global climate change and we all wanted to decarbonise but what has happened is that there is one massive underinvestment for the last five years into fossil fuels whether it is coal, whether it is oil, whether it is natural gas,“ Mr Roubini told a conference in Dubai on Monday.