Oil will come off the boil

The price of Brent crude, the main oil-price benchmark, has broken through $75 for the first time this year. But the rally won't last.

945_MW_P04_Markets_Bottom

US sanctions against Iran have propelled prices above $75 a barrel

The price of Brent crude, the main oil-price benchmark, has broken through $75 for the first time this year, marking a 50% increase since 1 January. A US waiver that had enabled China, India, Japan, South Korea and Turkey to continue buying oil from Iran after the reimposition of sanctions last year expired on 2 May, while unrest in Libya and American sanctions against Venezuela have also raised concerns about global supply.

The "sense of pessimism" that hung over the global economy at the turn of the year has receded in recent weeks, says The Economist, but an oil-price shock could yet "reinstate the gloom". The waiver expiry alone will remove more than one million barrels per day about 1% of global supply from circulation. Pricier energy is bad news for Chinese and European economies, and could worsen crises in Turkey, Argentina and Pakistan. Growth will suffer if the trend continues, say John Payne and Gabriel Sterne of Oxford Economics."All it would take is one more shock to supply" for the commodity to hit $100 per barrel, the level at which prices could begin to weigh significantly on global output.

Ignore these overly hasty predictions of doom, says Liam Halligan in The Sunday Telegraph. "The market is likely to remain well supplied." Amid all the geopolitics, US crude production has risen by a fifth to 12.2 million barrels per day since early 2018, thanks to the fracking boom. America is actually "pumping more than Saudi Arabia and Russia" at present, and oil-price hikes will only encourage the "boys down in Texas" to frack even more.

Russia will also be sorely tempted to increase output to gain a bigger share of the Chinese market (it is already the Middle Kingdom's second-biggest supplier). Expect this oil rally to "run out of fuel".

Recommended

Think Tesla is a bubble? This might be the best way to bet on it bursting
Oil

Think Tesla is a bubble? This might be the best way to bet on it bursting

The huge rise in Tesla’s share price means that, by market value, it’s now the sixth-largest company in the US and and the world’s biggest car-maker. …
25 Jan 2021
How the commodities supercycle will foment unrest around the world
Commodities

How the commodities supercycle will foment unrest around the world

Commodities, including metals, energy and agricultural goods have seen prices climb steadily. With many societies are already on edge, we could see a …
21 Jan 2021
Gold has had a tough start to 2021, but we’ve been here before
Gold

Gold has had a tough start to 2021, but we’ve been here before

Gold has had a disappointing start to the year – in an increasingly digital world, it’s the ultimate analogue asset. Nevertheless, says Dominic Frisby…
20 Jan 2021
More upside to come for the oil price
Oil

More upside to come for the oil price

The Brent crude oil price its highest level since last February this week. And there could be more gains to come.
14 Jan 2021

Most Popular

The FTSE 100 is set for a makeover with an influx of new tech stocks
UK stockmarkets

The FTSE 100 is set for a makeover with an influx of new tech stocks

The FTSE 100 – the dullest index in the world – is about to reinvent itself as a host of new firms list on the market. The change is long overdue, say…
24 Jan 2021
Why we won’t see a house-price crash in 2021
House prices

Why we won’t see a house-price crash in 2021

Lockdown sent house prices berserk as cooped up home-workers fled for bigger properties in the country. And while they won’t rise quite as much this y…
18 Jan 2021
Think Tesla is a bubble? This might be the best way to bet on it bursting
Oil

Think Tesla is a bubble? This might be the best way to bet on it bursting

The huge rise in Tesla’s share price means that, by market value, it’s now the sixth-largest company in the US and and the world’s biggest car-maker. …
25 Jan 2021