Can the oil-price rally continue?
The oil price has risen by 120% since its April low. But that is encouraging producers to increase supply.
When US oil futures plunged below zero in April the country’s shale industry was knocked sideways. More than 100,000 US energy jobs have disappeared since the pandemic began and rig counts fell by 73% in the year to 17 July. A dearth of supply helped Brent crude rally by 120% since the April low. Trading above $43 a barrel this week, oil is still down by 33% this year.
US oil output bottomed out in the second week of June, say Derek Brower and Myles McCormick in the Financial Times, but better prices are now encouraging higher output, with US production up “by 1.2 million barrels a day over the past six weeks”. As Alexandre Ramos-Peon of Rystad Energy puts it: “It’s a slow, slow recovery, but it’s happening”.
America is not the only producer to be boosting supply. A recent deal by oil exporters’ cartel Opec and Russia will see supply curbs gradually eased from August. Saudi Arabia is frustrated that its allies are not honouring promised production cuts, says Jason Tuvey of Capital Economics. During recent negotiations, Riyadh reportedly threatened a repeat of the “price war” that tanked oil prices this spring. As prices recover the incentives for governments to cheat on their quota will only grow, and Saudi Arabia’s willingness to curb its own production in order to support prices will fall. This year’s “oil price war” may be over, but it could prove “a sign of things to come”.
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Alex is an investment writer who has been contributing to MoneyWeek since 2015. He has been the magazine’s markets editor since 2019.
Alex has a passion for demystifying the often arcane world of finance for a general readership. While financial media tends to focus compulsively on the latest trend, the best opportunities can lie forgotten elsewhere.
He is especially interested in European equities – where his fluent French helps him to cover the continent’s largest bourse – and emerging markets, where his experience living in Beijing, and conversational Chinese, prove useful.
Hailing from Leeds, he studied Philosophy, Politics and Economics at the University of Oxford. He also holds a Master of Public Health from the University of Manchester.
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