A surprisingly bad bout of winter weather has bombarded much of the Midwest, causing disruptions in the largest oil-producing areas of the country. Besides affecting millions of people with snowy traffic and power outages, this freezing weather is shutting down oil production in areas such as the Permian Basin. With oil output largely curbed, prices are expected to rise over the next couple of days as the aftereffects of this uncharacteristically bad weather subsides.
Prices of West Texas Intermediate futures ended on Tuesday around at around $60.5 per barrel, a 0.7% increase, while Brent futures were trading around $63.9 per barrel instead, a 0.9% price jump. The energy sector, in general, shot up significantly as well. The Energy Select Sector ETF, one of the largest energy ETFs on the market, was up around 2.7% on Tuesday as oil stocks rose on the news.
Some of the bigger gainers include PBD Energy (NYSE: PBF), Apache Corp (NYSE: APA), and Occidental Petroleum (NYSE: OXY), which are all up around 9.9%, 6.3, and 4.2%, respectively.
Although many were expecting that oil prices would stay low, especially considering that travel and tourism still aren’t back to the pre-pandemic norms, it seems that oil prices are managed to make a surprising rebound to back to 2018 prices.
In terms of actual production, oil output has fallen by around 2 million barrels per day, which is approximately 18% of the total U.S. crude output. While temperatures are expected to rise going into Thursday and Friday as the weather settles down, output might not be back to normal until next week.
A lot of Wall Street analysts now seem to have a very bullish take on not just commodities in general, but especially oil. Goldman Sachs analyst Alessio Rizzi said that the investment bank continues “to have a pro-cyclical tilt in our asset allocation,” adding that “adding energy equity exposure is attractive at this juncture, especially considering our constructive commodity view.”
Other analysts, such as Mark Kolanovic from JP Morgan, are going so far as to say that oil has entered into a “super-cycle,” with one of the biggest bull markets in oil expected to take over the coming months and years. The main drivers of oil demand include the broad reopening of the global economy, the end of the trade war, as well as loosen monetary policies from central bankers all around the world.
Of course, there are still other analysts that think the $60 per barrel price is unsustainable. The biggest question going forward is whether OPEC will end up keeping oil production where it is or gradually increase output once again to pre-pandemic levels. If the latter happens, it wouldn’t be surprising if oil falls back down to $50, or even $45 per barrel. While the growing popularity of electric vehicles (EVs) will definitely hurt long-term demand for oil, the short-term effects are still relatively insignificant.
Going back to November, oil prices have risen around 65%, making it one of the best-performing commodities out there on the market. While it might not be nearly as exciting as other fast-moving investments, such as bitcoin, oil is definitely one area that traders should keep an eye out going forward.
