Bull vs Bears - who will win?

Supply for all consumer goods including fuels has continued to be a major problem since the beginning of the Covid-19 pandemic. It seems that Covid-19 could be peaking out. If this is true, it could cause a potential boon to oil demand as countries open for travel and reduce restrictions.

The Organization of the Petroleum Exporting Countries (OPEC+) is one of the key drivers of market pricing. The organization released their demand forecast a few days ago and is now expecting demand to exceed 2019’s pre-pandemic level in 2022. They plan to add 400,000 barrels per day, per month, but are forecasting a supply deficit through the remainder of this year and into April of next year. They have commented that they would like to see Brent Crude between $65-$75 per barrel, but would be willing to let it get higher as long as the higher prices do not incentivize US production.

The Biden Administration is trying to continue stimulating the economy with $3.5T and $1.2T spending packages, even though supply issues are driving inflation higher. The administration is also restricting Fossil Fuels by imposing stricter regulations, imposing drilling moratoriums and canceling pipelines. As a result, US oil producers are wary of capitol investing and have been slow to bring production back online.

Energy shortages are not just a problem in the US. They are happening globally. A coal shortage in China is causing electricity shortages forcing businesses to shut down. The lack of North Sea winds to power wind turbines is causing electricity shortages in Europe. These shortages are spiking the price of Natural Gas and supporting other substitute fuels.

Below is a chart of US crude inventories. You will see that our levels are in the middle of the 10 year range, but are much lower than last year and slightly below the 3 year average.

Aside from the risk of an economic downturn in the stock market or another rise in Covid cases, most factors are bullish for energy prices in the near term. This could easily extend into next year or longer as there are global initiatives and social pressures trying to push down the use of fossil fuels.

With higher prices come the potential for more supply. As they say: “The cure for high prices is high prices; the cure for low prices is low prices.”

Reach out to one of our CVA Energy team members today for more information on the markets. Our contact information is on our website.