Can oil reach $100 per barrel?
Several factors could push oil towards $100 per barrel as the markets look to sustain momentum. In natural gas, we can see a supply/demand deficit supporting prices.
Despite the Saudi price cut for the Asian market, oil started the week fairly strongly.
Prices stabilised and have continued to hold ground at key resistance levels after OPEC-JMMC monthly talks. At the time of writing, WTI was trading for around $69.00. Brent crude is trading for $72.43.
$70 may be the real test for WTI going forward after the benchmark was pushing towards that region on Tuesday morning.
One important takeaway from oil markets at the start of the week is the size of the drawdown shown in the latest EIA crude inventories support. Crude oil inventories showed one of the highest drawdowns to date, according to EIA data for the week ending August 27th. Stocks dropped by 7.2m barrels from the previous week then. Working US crude oil inventories now stand at around 425.4m – 6% below the five-year average.
Don’t be surprised if this isn’t sustainable – not due to demand, but due to the impact of Hurricane Ida. Much of the US’ oil infrastructure lay in its path, and several rigs in the Gulf of Mexico were closed as the storm passed through. We’re likely to see lower numbers in the next report on Thursday.
Removing Ida’s impact from the equation, If conditions are right going forward, some analysts believe an $100 oil price can be reached if not this year, then in 2022.
OPEC+ is feeling particularly robust with regards to the wider demand picture. It’s upgraded its demand outlook to 4.2m bpd by 2022.
The cartel decided to stick with its 400,000bpd monthly output hikes in its September meeting. It’s a fairly harmonious realm over at OPEC+ HQ right now. September’s discussions took under an hour to reach an agreement – far shorter than the month-long tussle seen in August.
Other factors at play that could push oil towards the $100 mark include:
- Record revenues from oil majors, particularly shale producers – According to Rystad Energy, US shale firms are on course to create record-breaking revenues this year, to the tune of $195 billion before factoring in hedges in 2021.
- Demand recovery in China – China is the world’s largest crude oil importer. It’s not slow to act when containing new COVID-19 outbreaks. The latest Beijing lockdown halted private travel, but now apparently the city is COVID-case free, so it appears these ultra-restrictive lockdown measures work. Reports are now saying Chinese importers have picked up delivery requests and China could now be on the way to full demand recovery.
Goldman is still a firm oil bull. The investment bank estimates prices will hit $75-80 by the end of 2021.
While this is all encouraging, the simple fact is the virus is still knocking around. We are still in a pandemic. Worldwide oil demand recovery is tied in with case numbers. There are indicators that infections across the globe are starting to fall, but there is a long way to go until we’re back to normality.
Natural gas trading
Natural gas prices have continued to soar to regions not seen for years. A mixture of robust heat, flat inventories, and Hurricane Ida’s impact continue to buoy prices.
Weather is expected to heat up in key US demand areas across the coming weeks. Natural Gas Weather rates demand forecast as a medium at the time of writing, but this could increase to high along with rising temperatures.
Supply squeezes are also doing their bit to support prices. According to data from the EIA, the total average natural gas supply fell by 2.3%, or 2.3 Bcf per day, compared with the previous report week.
Drops in output are likely linked with the effects of Hurricane Ida. Much of the US’ gas production infrastructure sat squarely in Ida’s path. Two weeks later, the process of reopening gas facilities is still underway.
Prices could rise further beyond their already strong highs if this is the case. The current supply/demand deficit, particularly in hurricane-hit regions of the US, shows a market imbalance, which is partly why natural gas prices are performing well.
At the time of writing, natural gas was trading at the $4.671 level.
Working gas in storage was 2,871 Bcf as of Friday, August 27, 2021, according to EIA estimates. This represents a net increase of 20 Bcf from the previous week. Stocks were 579 Bcf less than last year currently and 222 Bcf below the five-year average of 3,093 Bcf. At 2,871 Bcf, total working gas is within the five-year historical range.