The oil price soars – but can it last?
The oil price has risen by nearly 25% so far in 2019, well in advance of any developed-world stockmarket. But the surge may not get a lot higher from here.
The oil price (as measured by the Brent crude benchmark) has risen by nearly 25% so far in 2019, well in advance of any developed-world stockmarket, as oil producers slash production in a "shock and awe strategy", said Goldman Sachs analysts. So far oil cartel Opec and the other big producer, Russia, have reduced output from 31.6 million barrels a day in December to 30.8 million in January. Meanwhile, Venezuela, another big producer, is in meltdown.
But the surge may not get a lot higher from here. Output cuts could be offset by rising US shale production. Last year, US oil producers experienced pipeline bottlenecks (with oil supplies outstripping the capacity to get it to market), but those should ease by the end of 2019. US output is already expected to surpass 24 million barrels a day over the next six years, according to Reuters. And there are signs that US output is set to rise further.
The latest rig count from energy services firm Baker Hughes shows that US energy firms have boosted the number of rigs drilling for oil to 857, from fewer than 800 a year ago, notes Henning Gloystein on Reuters.
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Markets aren't ready for this surge in production, reckon Commerzbank analysts.US supplies are growing much faster than expected, yet this"is being completely ignored at present". As a result, "we view the current price rise as exaggerated and see growing correction potential".
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Marina Gerner is an award-winning journalist and columnist who has written for the Financial Times, the Times Literary Supplement, the Economist, The Guardian and Standpoint magazine in the UK; the New York Observer in the US; and die Bild and Frankfurter Rundschau in Germany.
Marina is also an adjunct professor at the NYU Stern School of Business at their London campus, and has a PhD from the London School of Economics.
Her first book, The Vagina Business, deals with the potential of “femtech” to transform women’s lives, and will be published by Icon Books in September 2024.
Marina is trilingual and lives in London.
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