The beginning of Fall
Over the past few years, the oil and gas markets have seen tumultuous changes due to new regulation, output, and most recently, the Coronavirus pandemic. Despite the lows of 2019 and 2020, oil prices are now seemingly reaching higher points than they have in the past 3-4 years. In the beginning of fall, Brent Crude had gained over 55% for the year to date. At the end of September Brent was trading at around $80 a barrel and the West Texas Intermediate (WTI) had hit the $75 mark. This was a stark difference to the prices we were seeing during the pandemic and marked a turning point in the industry in terms of prices. With prices hitting all time highs since 2018, investment banks and traders predicted even higher growth with Goldman Sachs saying Brent could hit $90 per barrel and the Vitol Group predicting oil demand to rise by over 500,000 barrels per day in the winter. This was mid to late September 2021, and we are now slowly approaching the winter. So where do these predictions stand now?
November and the price of oil
Although prices for both Brent and WTI have not seen the levels of increase expected in September, as of Monday, Brent had hit the $84 Dollar mark and WTI had hit the same as well. This still shows and confirms validity to a majority of polls and predictions that stated that oil would maintain its currently high prices with Reuter’s polls finding that most analysts predict things will stay like this over the winter. Demand is growing higher globally and concerns about output and reserves still increasing. Brent and WTI are maintaining their prices at their current level despite major oil producing nations and groups such as OPEC promising to increase output to over 400,000 barrels per day. Fears are still large with concerns of oil prices reaching a new 7-year high territory (Reuters).
Why is this happening?
There is a variety of causes for this predicted increase in demand and prices. One being with global economies, trade, travel, opening up post the pandemic lows, countries have increased their demand as well as imports. India, who is the second biggest importer of crude oil has ramped up its imports as their refiners begin to stock up as they project higher demand going forward.
In the United States, in early fall, hurricanes Ida and Nicholas passing through the Gulf of Mexico damaged key US oil infrastructure and a dramatic surge in natural gas prices made oil relatively a cheaper alternative for power generation- driving its price up. Just last week, US President Joe Biden urged major G20 energy producing countries with spare capacity to boost production as part of a broad effort to pressure OPEC+ to raise supplies.
Europe is seeing a major energy crisis with natural gas prices hitting record highs. This has increased the demand for alternative sources and thus oil has seen a major increase in demand, again driving its price and creating a supply shortage. The Chinese government has recently promised to open up diesel and gasoline reserves to boost global supply but, up to date, this has not affected the prices of Brent or WTI. All of this, coupled with rising input costs and weaker growth in Europe has created a perfect situation for oil prices to sustain their currently high levels with everybody’s eyes now turning to the winter and what a harsh winter could mean for Brent and WTI prices.
A harsh winter ahead?
With winter well and truly approaching, if the crisis in Europe and around the world is not averted and other sources of energy continue to be too expensive, this will inevitably drive oil prices to extreme heights. Some analysts from JP Morgan have even predicted oil prices reaching closer to the $100 mark in the winter if the energy crisis is not averted. One factor that might have an affect on this is the OPEC+ November meeting which will set out supply goals for December. Although analysts found that OPEC+ fell short on their October promises, this could again keep oil prices at a sustained level and not create an even bigger increase.
“Oil prices are scaling multi-year highs as a shortage of natural gas, LNG and coal boosts demand for oil, which could keep the market in deficit through at least the end of the year. “ (IEA)
A quick word from our Founder
We spoke to Autie Mcvicker, founder of Onward Consulting and asked him to share his thoughts on this topic. Post Covid recoveries, a harsh US Winter, will inevitably push these prices up. On top of this, policies in the US and around the globe supporting this will lead to an inevitable increase in prices over the winter.
“I feel the price of crude will continue to strengthen. Several causes are led by the energy policy of the current US administration and its intention to make the US a net importer and restrict production of domestic fuels.”
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