A lot of commodities have seen their prices skyrocket in recent months. Construction-related goods, like copper and lumber, have seen prices go parabolic. In contrast, commodities that do well in bearish markets, like silver and gold, haven’t done as well as many would expect. However, one surprising winner in all this is oil prices, which have steadily risen to around $68 per barrel West Texas Intermediate, while Brent Crude officially broke $70. Just recently, OPEC released a new forecast in which it expects oil demand to keep skyrocketing as the economy opens up.
With prices settling near $70 per barrel, OPEC and its allies are forecasting higher demand all around the world. In turn, the group had decided to continue dialing back on previous supply cuts they made back when the pandemic first started. If you remember, prices at one point dipped into the negative back in 2020 for the first time in history. While the outlook was incredibly grave, few anticipated oil would make such a remarkable recovery in less than 12 months.
OPEC has since said that it’s going to increase its output by 2 million barrels per day by the end of July. In total, the brings output up to an extra 4 million barrels per day, compared to the 9.7 million barrels per day the group agreed to cut back in early 2020. Most analytics groups are also predicting a massive spike in demand as well. The Organization for Economic Cooperation and Development said on Monday that it expects global oil output to go up by 5.8%, the largest increase since 1973.
Mind you, this increase in demand is despite the influx of new Iranian oil. Previously off-limits due to trade embargoes, the influx of another oil supplier onto the market, in addition to America’s growing output, has prevented prices from rising even more. What’s more, the oil accumulated during the heights of the pandemic months, when oil demand was lowest, has since been used up over the past several weeks.
“The demand growth is pretty OK, the OPEC+ discipline is very good, inventories are going down. If there is no Iranian shadow on the market, prices could hit $75-$80 by the middle of the third quarter,” said one energy analyst and expert in a Bloomberg interview.
As expected, some of the best-performing stocks were energy companies. Companies like Occidental Petroleum and Devon Energy were both up as much as around 10% once the markets closed on Tuesday. Most other energy companies were reporting big gains as well, thanks to this rising demand for oil.
Although prices have hit the $70 point once again, it’s questionable whether prices will continue going any higher. We’ve seen oil trade for around $120 back in the early 2010s. However, that was when American oil output had remained relatively low before the Trump administration actively pursued a policy of expanding domestic production. Now with America being a leading oil producer, that’s a new supply of oil that wasn’t around back during the early 2010s. Is it hypothetically possible to hit $100 or more per barrel? Yes. But traders shouldn’t get their hopes up anytime soon.