Are we looking at a new oil price rally?

Oil prices are beginning to rise again but can they hold their new levels? Meanwhile, natural gas is largely set to benefit from the Northeast US’ current cold snap.

Oil trading

The big news is oil prices are starting to enjoy a bit of a rally. At the time of writing, WTI and Brent had breached $58 and $60 respectively – the highest levels seen since the market crashed last year.

There are a few factors behind this latest price strengthening. Firstly, Joe Biden’s stimulus package. The $1.9 trillion in extra economic help for the US could be increasing oil demand. Another Biden-led factor is his environmentalist drive to clean up the US by transferring away from fossil fuels to renewable energy. Tighter supply could mean higher prices, and those seeds look like they are being sown.

Apart from US demand, China is a particularly thirsty power and is gulping down crude at high rates, especially if the record number of supertankers and Chinese ports are to believe. Roughly 127 supertanks are currently berthed at Chinese ports, 30% higher than the four-year average for this time of year.

OPEC cuts continue to play their role in strengthening oil prices. According to the latest production reports, the cartel and its allies were 99% compliant with agreed production cuts. Chances are these will remain in place. It also looks like Saudi Arabia will unilaterally cut a one million more barrels from its own volumes to prop up prices.

One note of concern for OPEC though was the potential for Iranian oil to hit markets should the Biden White House decide to loosen Trump-era sanctions. That could result in a glut, in spite of lower worldwide demand, and thus weaken the oil price.

That remains to be seen, but for now, it appears oil prices are in a good place.

Natural gas

Total US gas consumption showed a notable increase last week as cold weather swept across key demand geographies. EIA reports a 2.5% overall rise in consumption, with 124 Bcf/d withdrawn from storage inventories – the highest drawdown of the winter so far.

Further high demand is predicted as weather forecasts say more snow and ice is on the way. In fact, February looks like it will be one of the coldest on record in North America, which should mean higher demand for residential and commercial heating, further storage drawdowns, and thus higher prices. All potentially good news for traders.