The last time oil crested $100 per barrel was in 2014. And the price seems to be headed back there. Tight supply and expansive demand are the catalysts.
While a revisit to triple digits has long been expected, this time it’s for real, according to Canaccord Genuity Capital Markets. The market is telling investors, “See ya at $100/bbl,” wrote Martin Roberge, a portfolio manager at the well-regarded Canadian investment firm, in a research note.
West Texas Intermediate Crude has been climbing since the early days of the pandemic, when it had sunk to $18. Just this year, it is up almost 20%, and closed Wednesday above $90.
While the Organization of the Petroleum Exporting Countries and its allies have recently indicated they would boost output, Roberge said they “can’t produce as much oil as expected.” How come? Low capital spending to increase their pumping and storage capacity during the pandemic. Plus, an unplanned outage.
Global oil demand has fully recovered, nearing 100 million barrels per day, by Canaccord’s estimate. Meantime, non-OPEC production is lagging. US and Canadian producers are more intent on returning cash to shareholders than they are focused on developing new oilfields, Roberge said.
Certainly, higher oil prices are a boon to energy companies such as ExxonMobil. But this price climb “can be interpreted as a tax on global growth,” he pointed out.
Another question is how long oil prices can remain so lofty. “The real test for them should come in the second half, following steady, albeit subdued, crude-oil supply increases,” he wrote. This will be coupled with Federal Reserve rate boosts, a projected economic growth slowdown, and the toll that higher prices will take on oil demand.
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Tags: Canaccord Genuity, ExxonMobil, oil, OPEC, West Texas Intermediate Crude