Last year, oil prices averaged $44 a barrel. Now Brent crude has crept up to $60 for the first time in two years, double the price seen in the spring of 2016. And the "fundamentals continue to favour the bulls", Tom Essaye of the Sevens Report told MarketWatch.
On the demand side, signs that global growth is strengthening have given the bulls confidence. Opec, the oil exporters' cartel, has just nudged up its demand forecast for 2018, while the International Energy Agency estimates that global demand is climbing by 1.6 million barrels per day this year, almost double the amount in 2011-2014, when oil was at $100 a barrel.
As far as supply is concerned, a deal between Opec and major non-Opec suppliers such as Russia to cut output, designed to mop up a global glut, now looks set to be extended beyond the originally planned expiry date of March 2018. Indeed, the Saudi crown prince has said he wants the deal to continue until the market has come back into balance.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Meanwhile, oil exports from the Kurdish region have been interrupted, and there has been talk of new US sanctions on Iran constraining production there. A slowdown in US drilling has also contributed to price rises. The number of active US oil rigs slipped for a third successive week in late October.
So far so bullish, but there seems little scope for oil to rise all that much further.The key change in recent years has been the advent of US shale oil. As a result, America now accounts for 14% of global oil production, says Liam Halligan inThe Sunday Telegraph as much as Opec's swing producer Saudi Arabia.
Shale-drilling costs have fallen as technology has improved, and producers can rapidly hop back into the market once prices rise. And while shale output may have slowed recently, it hasn't peaked. It is set to climb for the 11th straight month in November, says Sara Sjolin on MarketWatch.
Shale output has capped oil prices in recent years, keeping oil in a range of $40-$60. Strong demand may well keep oil above the $60 mark for some time, but US production will still result in a small market surplus next year, reckons Capital Economics, while US sanctions against Iran look unlikely. With shale still preventing oil prices from taking off, Brent may now simply settle into a slightly higher range.
-
Barclays warns of significant rise in social media investment scamsInvestment scam victims are losing an average £14k, with 61% of those falling for one over social media. Here's how to spot one and keep your money safe
-
Over a thousand savings accounts now offer inflation-busting rates – how long will they stick around?The rate of UK inflation slowed again in March, boosting the opportunity for savers to earn real returns on cash in the bank. But you will need to act fast to secure the best deals.
