If there’s a single commodity that’s emerged as the big winner throughout 2021, it’s oil. Prices have risen and hovered between $60 to over $80 for most of the year, a far cry from the sub-$50 range it was trading at prior. Crude reported another 3.5% gain on Tuesday for a variety of reasons, with most energy stocks seeing a nice bump in their stock prices as a result.
Brent crude finished the day up to almost $84 per barrel, the highest we’ve seen since early November. West Texas Intermediate also reported a similar gain, with prices settling at just under $81.2 per barrel. There are a few different catalysts going on right now to explain this jump.
Among others, Federal Reserve Chair Jerome Powell said before a Senate Banking Committee that he expects the economic impact of the new variant to be short-lived. In turn, this would suggest that demand for oil, which has fallen in the past during the heights of the pandemic, should go up accordingly. Given Powell’s comments were the biggest news of the day, it’s not surprising that oil traders were quick to buy up crude options merely in response to this news.
However, there are other catalysts as well. Libyan ports have continued to be shut down due to bad weather in the region. While not as big of a producer as Saudi Arabia, Russia, or the rest of OPEC, Libya’s one-million barrels per day of output has effectively been kept off of the global markets due to this weather.
As a result, this has created more cramped supply conditions, while demand expectations have been ramped up due to Powell’s statements. OPEC also mentioned earlier that its supply might not be able to grow as fast as demand is increasing, something which also has a bullish effect on oil prices.
“Combination of facts – that demand is going to be stronger than anticipated and that OPEC’s supply may not grow as fast as the demand – is why prices are climbing,” said Phil Flynn, senior analyst at Price Futures Group. “Omicron has yet to wreak the havoc of the Delta variant and may never do so, keeping the global recovery on track,” added analyst Jeffrey Halley.
The U.S. also confirmed that its oil output is expected to rise by an extra 610,000 barrels per day, set to hit 12.4 million bpd by 2023. That’s slightly lower than the 670,000 bpd increase initially expected, which might also have a slight influence on today’s oil prices.
Towards the tail end of 2021, some analysts were predicting that oil would top $100 per barrel sometime in 2022. While some of these oil bulls dialed back their expectations as Omicron cases started spreading, there are still some that remain just as bullish right now as they were a few weeks and months ago. The real X factor for long-term oil rises is American output, which is continuing to grow year by year.
Following the rise in crude prices, oil stocks were some of today’s best gainers. Oasis Petroleum (NYSE: OAS) shot up over 5% today, while Earthstone Energy (NYSE: ESTE) was up over 11.3% on the news.