It's been several weeks that the price for Brent and WTI futures started aiming at the levels that we haven't seen for a year. Let's find out what's going on in the commodity market, and which events have become such a blessing for oil prices.
What's going on with oil prices?
According to the information about trades in the ICE (London), today, on February 17th, when this article is being prepared, Brent futures for April grew to 64 USD per barrel, having grown by 1.03%. WTI futures for March rose by 0.78%, reaching 60.52 USD.
It's worth mentioning that no oil type could boast such a price since January last year.
What are the reasons for such growth?
Because unnaturally freezing weather hindered the work of all electric power plants in Texas, all oil refactories were closed there. Mind that there 31 oil plants in the state producing daily 4.6 million barrels of oil. The market got worried that oil supply from Saudi Arabia would be delayed and pushed oil prices up. The disturbance was caused by the news that Yemen houthi attacked the airport in Saudi Arabia.
The global vaccination campaign is also unwinding actively, which is also good influence that makes investors optimistic. Shall we not forget about the economy stimulation plan suggested by Joe Biden and already approved by the Senate. By the plan 1.9 trillion USD will be spent on supporting the citizens and business. Such news also push commodity quotations up.
OPEC+ members are trulyimpressing by their discipline and devotion. The fact that production remains under control is crucial. Moreover, on February 1st, Saudi Arabia announced a decrease in production by 1 million barrels. As a result of these complex measures, global oil storage is decreasing. In the USA, for example, the current oil storage is just 4% higher than during the last 60 months on average.
In the International Energy Agency, they say that OPEC+ will have a chance to increase production as early as the second semester of this year. This, of course, will drive futures prices down.
Curiously, the IEA forecasts the growth of not only supply but demand as well. Analysts think that this year non-OPEC+ countries will increase production by 830 thousand barrels a day. Meanwhile, the global daily demand will amount to 94 million barrels, which is 60% of the pre-pandemics volume.
Experts from JPMorgan Chase, in their turn, claim the beginning of a new supercicle of commodity prices growth, the fifth of the last 100 years. This time it happens because market players are hedging inflation, being sure that the restoration of the economy after the pandemics will be amazing.
They also forecast in JPMorgan Chase that in the fourth quarter of 2021 a barrel of Brent will cost 68 USD; Goldman Sachs experts suggest growth to 65 USD, and those from Citigroup — to 70 USD.
Where will demand grow?
Guess which country will be the locomotive of demand for oil in the nearest decade. If you thought of India, you were damn right. Well, at least, enjoy a respectful bow from the IEA analysts.
They're sure that by 2040, India will have increased demand for oil to 8.7 million barrels a day. Note that in 2019, it was under 5 million barrels. For buying foreign oil, the country will allocate some 225 billion USD a year, which is three times more than before the pandemics.
As for the country's own oil plants, in 20 years their production power will amount to almost 8 million barrels a day. However, the domestic product will only cover up 8% of the necessary volume.
Sticking to OPEC+ agreements on production, a decrease in the world storage, the stimulation of the US economy, global vaccination, and, finally, record colds in the USA made the price of Brent and WTI futures grow.
Experts say that the trend will remain positive, and in the fourth quarter of this year the price might reach 70 USD per barrel. Are you also so optimistic?