We have seen strong moves in key crude oil benchmarks – WTI and Brent over the past several months. This started with the appearance of positive news on the Covid front that the vaccine under development was extremely effective, likely to mark the end of the spread of the virus. This upward trend in crude was driven by a gradual decline in U.S. shale production and inventories over the same period.
-EIA chart data by the author
Finally, a move in early January by OPEC + to halt production in mid-2021 and a special “gift” from Saudi Arabia to take another 1 million BOPD out of the market was the driving force behind a steady increase of WTI in the 50’s. Dollar.In this article, we will discuss the key reasons we think the crude upward trend will continue this year.Why?
Demand will return
Although the current shutdown inhibits demand. But it tends to be higher As the use of vaccines increases populations immune to the virus, business activities are resuming demand for refined petroleum products. The graph below shows the Energy Information Administration’s EIA, forecasting trends for refined products over the next few years. As for gasoline, the primary fuel used in the US will gradually rise in the second half of 2021, then rise in 2022, well below the 2019 EIA levels, making assumptions about working from home and reducing. Forecast travel The forecast was not as strong for jet fuel, showing modest growth in 2021, but coming back near 2019 levels in 2022; total demand rose to and slightly above 2019 levels by 2022. Related: Epidemic Could Lead to Major Oil Supply Crisis
Which is an important factor for the price of oil
Political and macro environments will drive supply drops.
Election has effect Concentration of power over the next few years, with Democrats controlling all three branches of the government, will make US production an unlikely increase. From the peak of 2020 where the US produced more than 13mm BOPDs, production in response to low prices has dropped to 11.0 mm BOPDs, we see an improved and tighter regulatory environment in In the next few years The US will stick to more renewable routes with the cost of petroleum-based fuels. The United States’ return to the Paris climate will only exacerbate this trend. Fossil fuels will become scarce, and that is higher in price.
OPEC + surprised the world with its determination to finally push the price higher. Using its ability as one of the world’s top three crude oil producers and its unmatched position as the world’s lowest-cost producer, Saudi Arabia has opted to withdraw another 1 million BOPD from the global market. As part of the OPEC + commitment, it was this action that moved the oil market above $ 50 for the first time since the beginning of March 2020. What made it clear that the alliance was returning to its traditional role in crude oil pricing for world
The drop in US supply will firmly return pricing power to the OPEC + group, whose newly-acquired $ 50 catch is likely to be ground prices in the future. The abundance that we have had to deal with over the past few years will continue to decline as capital-controlled U.S. shale producers have weakened the overall outlook. OPEC + has the sole mission to yield the highest returns. Members by balancing supply and demand Western countries’ current economic obsession with climate change is not a catalyst for the major nations that make up OPEC +, their economies are driven mainly by crude oil exports, and they are in demand. Higher price
OPEC + returns to producer role in upswing for oil prices
Commodity prices will boom.
Last fall I wrote a file. Oil price article I pretend that there might be a commodity boom on the horizon. No commodity is more fundamental to the world economy than crude oil. Among the things that drive crude oil beyond scarcity are the dollar-priced truths that make it more sensitive to inflationary pressures.
The dollar index has fallen over the last year. But it has only recently been backed up with an upward trend over the course of a week. A stronger dollar is good for the price of oil as you get less fuel for the dollar, meaning you have to spend more to get the same amount. This is inflation, and as noted above, crude oil is very sensitive to this pressure.
Related: Saudi Arabia Begins New Bull Run in Middle East Oil
We cannot ignore the amount of stimulus the world economy has reacted to the virus. We think that as infection rates begin to decline, governments will begin to deal with historically low interest rates, helping to maintain liquidity in the epidemic. There is a price to be paid for the current scattered cash flow and additional stimulus to come as Biden’s management takes over the economy. Classic monetary theory tells us that part of the price is likely inflation.
There was an urge to compare the crisis to the 2008 financial crisis, where the Treasury borrowed about $ 500 billion to provide liquidity that hindered the collapse of the financial system. So far, in the United States alone, nearly $ 4 trillion worth of stimulus has been approved, along with other Federal Reserve actions to ensure institutions, corporations and small businesses have the necessary funds to operate. As stated earlier, the Biden administration has just begun and has discussed trillions of financial stimulus for the economy.
Commodity prices rose sharply between 2008 and 2011, in the face of the stimulus responding to the 2008 financial crisis, the same index below shows that in the past six months the index has risen sharply. The increase is related to the amount of stimulus that is expected from the global economy.
As noted earlier in this article, crude oil is the most fundamental and volatile of a commodity.
The environment where rising or sharply higher commodities prices are largely driven by higher oil prices.
Compactness prevents us from discussing all the factors that may affect oil prices in the short term. Based on the information provided in this article, we think there are strong cases that have led to a steady increase in oil prices for the rest of the year.
Over the long term, we expect crude oil prices to rise as shrinking supply fails to meet rising demand. We view this as inevitable, as I said earlier. Oil price articleUnder the investments of major international oil companies over the past six years it creates a situation where the industry will not be able to respond to the ever-increasing demand.
By David Messler for Oilprice.com
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