The oil-price rally may run out of puff

The Brent crude oil price hit its highest level since May 2019, fuelled by optimism about economic reopening. But the rally might not last.

Brent crude oil was trading at over $71 a barrel this week, its highest level since May 2019. The latest leg of the rally was due to Opec+, a group of major producers led by Saudi Arabia and Russia. The group has been collectively withholding millions of barrels of daily production from world markets in order to prop up prices. Last week they agreed to maintain their existing plan to unwind those curbs slowly rather than upping production more quickly to take advantage of higher prices. 

The surge in crude has also been fuelled by optimism about economic reopening, says Patti Domm for CNBC. America has now entered its summer “driving season”. Reopening economies mean global demand should grow by seven million barrels per day (mbpd) between the first and third quarter, says Daniel Yergin of IHS Markit (worldwide consumption was 91mbpd last year). Even a return of Iranian supply – currently barred by US sanctions – to the world market would be absorbed by the ongoing demand spike. Oil is heading for “a hot summer”.

Not so fast, says The Economist. The higher prices go the more incentive US shale producers have to get back in the game. Floods of US shale oil have kept a cap on previous oil rallies. Higher prices will also encourage individual Opec+ members to cheat on their commitments by pumping more crude than they promised. Opec+ has been disciplined so far; it might not last.

Recommended

How not to get beaten by inflation
Inflation

How not to get beaten by inflation

With inflation at 9%, and the bank rate at 1% you’re not going to get a real return on cash. But there are steps you can take to beat inflation, says …
19 May 2022
Barry Norris: we’re already in the 1970s. Here’s how to invest
Investment strategy

Barry Norris: we’re already in the 1970s. Here’s how to invest

Merryn talks to Barry Norris of Argonaut capital about the parallels between now and the 1970s; the transition to “green” energy; and the one sector w…
19 May 2022
Delivering profits : should you buy Royal Mail shares?
Share tips

Delivering profits : should you buy Royal Mail shares?

The volume of parcels delivered by Royal Mail soared during the pandemic, and so did its profits. But it has been coming under pressure lately. So, as…
19 May 2022
Avoid easyJet shares – there are better airlines to invest in
Share tips

Avoid easyJet shares – there are better airlines to invest in

EasyJet used to be one of Europe’s most impressive airlines. But now it is facing challenges on all fronts and losing out to the competition. Rupert …
19 May 2022

Most Popular

Get set for another debt binge as real interest rates fall
UK Economy

Get set for another debt binge as real interest rates fall

Despite the fuss about rising interest rates, they’re falling in real terms. That will blow up a wild bubble, says Matthew Lynn.
15 May 2022
Is the oil market heading for a supply glut?
Oil

Is the oil market heading for a supply glut?

Many people assume that the high oil price is here to stay – and could well go higher. But we’ve been here before, says Max King. History suggests tha…
16 May 2022
Value is starting to emerge in the markets
Investment strategy

Value is starting to emerge in the markets

If you are looking for long-term value in the markets, some is beginning to emerge, says Merryn Somerset Webb. Indeed, you may soon be able to buy tra…
16 May 2022