Oil prices jumped 1% on Thursday afternoon after the International Energy Agency (IEA) hiked its oil demand growth forecast for the year.
Furthermore, surging natural gas prices encouraged many consumers to switch to oil and wood for power generation, which has also increased prices for other materials such as paper.
Brent crude futures stood at US$98.34 a barrel around lunchtime in London, up 0.97% on the day, while US West Texas Intermediate (WTI) crude futures were up 1.06% to US$92.90.
"Natural gas and electricity prices have soared to new records, incentivising gas-to-oil switching in some countries," IEA commented in its monthly oil report, where it lifted its 2022 demand outlook by 380,000 barrels per day.
The IEA also said that sanctions on Russia have had “limited impact” on the country's oil output since they were impost by many Western countries since the invasion of Ukraine.
While Russian crude exports to Europe, the US, Japan and Korea were down 2.2mln barrels per day compared to before the war, with China having overtaken the EU as the biggest importer of Russian crude in June, and flows to India and Turkey having also risen.
“Asian buyers have stepped in to take advantage of cheap crude,” the IEA said.
Meanwhile, Russian-owned Transneft restarted its flows via the southern leg of the Druzhba oil pipeline.
The IEA increased its forecast for Russian oil production for the second half of the year by 500,000 barrels per day and by 800,000 a day for 2023.
Separately, the UK Office for National Statistics noted that the system average price (SAP) of gas in the UK had fallen to 61% of the peak level seen in March, according to National Grid data.
The SAP decreased by 6% in the week to 7 August, the data showed.