After a few months of lull, investors are buying into the bullish story on oil as prices hit new multi-year highs and stocks return to the races.
International oil prices hit new three-year highs on Thursday and continued to climb Friday as demand has improved and supply shortages persist in some areas. The production stoppages from Hurricane Ida continued a month after the hurricane made landfall, with nearly 300,000 daily barrels of oil still offline.
And demand is also increasing as international travel restrictions begin to ease. The latest oil update from the International Energy Agency predicts that “strong pent-up demand and continued progress in vaccination programs should support a robust recovery from the fourth quarter of 2021.” And OPEC recently raised its demand forecast for 2022.
“If we look at oil demand, no new lockdowns in Europe, a strong recovery in Chinese road activity and the US lifting the ban on foreign travelers from November 2021, all of them increase the prospects for upward momentum in the coming months. quarters,” wrote Rystad Energy analyst Louise Dickson.
Brent oil futures, the international benchmark, rose 0.8% to $77.88 a barrel on Friday. West Texas Intermediate, the US benchmark, rose 0.7% to $73.80 a barrel. More profit is possible, wrote Oanda analyst Craig Erlam.
“Brent oil has now set its sights on $80, where it could see some resistance again, with the next test for WTI at $75,” he wrote.
Oil stocks also rose and have had an excellent week. Some of that may have to do with the decision of
(COP) to buy
Royal Dutch Shell
‘s (RDS.B) assets in the Permian Basin for $9.5 billion, a vote of confidence in shale drilling by one of North America’s largest producers. Other shale specialists have been jumping since then.
The stock (FANG) is up 14% this week after having been in a dip since early July.
Natural Resources Pioneer
(PXD) is up 6.1% this week.
There are other signs that supply will remain weak as demand rises. While President Biden said at the United Nations this week that he is open to restarting the Iran nuclear deal, the status of that deal — and Iran’s substantial oil production — is still up in the air. The Iranian president was sharply critical of the US when he spoke before the UN, noted RBC Capital Markets analyst Helima Croft.
In addition, a recent poll by the University of Maryland’s Center for International Security Studies indicates that the Iranian public generally supports a tougher negotiating stance in the wake of the US’s withdrawal from the deal in 2018 and the re-imposition of crippling sanctions. ,” she said. wrote. “More than two-thirds of respondents (69 percent) said they did not want their government to talk to the Biden administration until it first returned to the nuclear deal and fulfilled all its obligations.”
If the deal is not signed, millions of Iranian barrels of oil could remain off the market, depleting inventories and continuing to raise prices.
There are at least two wildcards that could reverse the recent momentum. OPEC is meeting next month and may decide to ramp up production to curb price increases and maintain market share. And high prices can lead consumers to reduce oil consumption.
Write to Avi Salzman at email@example.com