Oil prices have reached a 6 year high following the end of discussion between OPEC and other nations known for oil production. They reached a conclusion that there will not be an increase of 400,000 barrels per day. Failure to reach an agreement is based off of a split in OPEC between the United Arab Emirates and Saudi Arabia.
Unless you have been living under a rock, it is no secret crude oil has been on a tumultuous ride. Crude has long been a commodity that follows up and down trends on traditional cycles. The seven-year boom followed by a year of bust broke cycle in 2015 and saw the oil and gas sector consumed with historic lows, layoffs, and bankruptcies. Oil struggled to regain its dominance at $100+/bbl and E&P Operators scrambled to be leaner and more efficient as $40 seemed to be the new $100.
Fast forward to 2019/2020 when oil finally seemed to find a balance. Exploration began to increase, and we saw some promise in drilling rig numbers. COVID-19 ravaged the world oil demand and we saw crude trade negative. COVID-19 kept a death grip on crude for the better part of a year, but 2021 is lining up to be a HUGE year for Crude. The roller coaster ride for crude leading up to 2021 has culminated into ripe conditions for an oil boom!
The API reported a crude draw of 8.537 million barrels far exceeding the 3 million barrel expected draw. While gasoline and diesel added inventories, the EIA reported less production. In the face of refined product inventory increases, prices held and, in some cases, climbed as the supply/demand curve signaled a stronger demand and tightening supply. Crude was trading at 32-month high of near $75 a barrel.
Crude has averaged $65/bbl in April, $68/bbl in May, and is holding above $70/bbl for June. Experts predict that crude will easily surge above $100/bbl and gas prices are likely to follow suit and increase as well. As supply continues to tighten and demand increases oil will continue to climb. The International Energy Agency began Friday urging OPEC to ramp up production while the Saudi Prince urged investors to back oil and gas exploration. Energy investors have been scared off and have shied away from backing E&P operators. The uncertainty leading up to June 2021 has led to less investing for exploration and drastically cut drilling budgets. Mergers and Acquisitions have pushed out many small operators and the larger operators are sticking to smaller and more lean operational footprints that focus more on efficiency and per foot costs.
The new super cycle of $100+/bbl crude is expected to come quicker than anticipated but also may last less than 18 months. Many factors could derail oil futures. New Covid strains that lead to lockdowns are a major concern. Government regulation and emissions standards are also sizeable threats. Despite the oil rally and a looming price explosion, many supers are still being ultra conservative in the Oil and Gas play. Navigating through the ever-changing crude and refined products market is less than ideal so talk to a Guttman sales representative today to secure your success for 2021 and into the future.
Crude has been the underdog since Covid-19 broke onto the scene in early March of 2020. We have seen historic contango, negative trading, inventories at the verge of 100% capacity. However, we have also seen refineries curtailing production and shutting down, crude breaking technical level after level, OPEC + committing to decreased outputs, a Texas winter weather creating supply concerns, and a slow steady recovery of crude as inventories are drawn down and production resumes. Crude has built a full head of steam and looks to be an unstoppable force and a surefire pick to rise to glory yet again for 2021. March Madness is known for its volatile emotional up and downs and surprise sleeper teams with unimaginable upsets. Will 2021 and a third European lockdown amid vaccine safety concerns be the sleeper to upset the rise of Crude?!
After 2020’s unpredicted decline in oil prices and subsequent response by OPEC+ to cut oil production as means to buoy oil prices, the world’s largest exporter Saudi Arabia, plans to reverse its position and increase its production in the coming months. This comes as WTI oil prices have traded to as low as negative $40/barrel back in April 2020, to currently trading at $60.42/barrel. Earlier this month OPEC+ leaders said they would cut production by one million barrels per day, with efforts to raise prices during the months of February and March.
Many investors are awaiting the OPEC+ decision on whether they plan to increase oil production even as the Covid-19 virus brings fear of another spike in cases.
Oil prices are edging slightly higher today on very light holiday trading volume, but the question is: have prices risen too far too fast?
For the 2021 calendar year, there will be 5.8 million barrels per day crude production cuts. These cuts are an effort to balance the current oversupply due to COVID-19 with an estimated demand forecast for the year.
Oil and gas explorations remain sluggish and failing to rebound as expected. At $40+ a barrel and positive market indicator would historically promote conditions for the industry to recover, however there has been no indication of a recovery to speak of. The new normal seems to be a slim, budget conscious, and efficient industry soup to nuts.