Oil Extends Rally as OPEC+ Cuts Set Up Tightest Market in Decade
This article from Bloomberg may be of interest. Here is a section:
Oil rallied to a 10-month high as production cuts by leaders of the OPEC+ cartel strain global supplies, a setup that’s projected to create the tightest crude market in a decade in the months ahead.
Global benchmark Brent climbed above $91 a barrel, and West Texas Intermediate topped $89, both fresh highs for the year. The gains are already showing signs of filtering into fuel markets, with US gasoline prices at the highest seasonal levels in a decade and diesel — the global economy’s workhorse fuel — pushing past $1,000 a ton in Europe.
Oil markets may experience a shortfall of 3.3 million barrels a day in the fourth quarter, the most constrained market in more than a decade, according to a report Tuesday from the Organization of Petroleum Exporting Countries. The US Energy Information Administration will publish its monthly market report later Tuesday, with the International Energy Agency’s outlook due Wednesday.
Bull markets in commodities can occur for several reasons. Those that last for more than a year or two are the result of a jump in demand and an inability to sufficiently increase supply to cater to it.
At present, OPEC is intentionally restricting supply with the intention of supporting prices. It is working. Non-OPEC supply is not increasing quickly despite high prices.
Major oil companies are not investing like they did in the past. That is both because access to funding is both reduced and more expensive. On top of that there remains considerable uncertainty about future demand and the regulatory burden.
The most important point is this recovery in oil prices is not being fuelled by a lack of access to supply but by an intentional effort to support prices. For example, offshore drilling has collapsed in popularity over the last decade because onshore has been so prolific. The oil is out there to be produced. What is missing in the will to do it and that is a political consideration more than anything.
Brent crude continues to extend its recovery and a clear downward dynamic will be required to question recovery potential. The challenge is the higher oil prices go, the greater the tax energy presents for consumers.
The Energy SPDR is now responding and is back testing the upper side of its yearlong range.
Shell closed above the psychological 1500p level today and is on the cusp of breaking out to new recovery highs.