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Earlier this year, oil began to lose favor with traders as the focus on energy shifted more and more to renewables and the energy transition. But last month, an energy crisis squeezed Europe. It then spread to China and India, and now there are warnings that it could travel to the United States. And the price of oil soars.
Speculators rush on oil as energy crisis deepens
John Kemp of Reuters reported in its latest weekly column on hedge fund buying of oil, big oil speculators bought the equivalent of 42 million barrels on the most traded oil and oil contracts last week, bringing the total for the past six weeks to 170 million barrels. That, Kemp noted, reversed more than half of net sales totaling 268 million barrels accumulated over the previous ten weeks.
Buying is also expected to continue this week, unless speculators decide to take profit, after yesterday’s OPEC + decided not to add more barrels to its monthly production increase of 400,000 bpd despite calls to do so from the IEA and Washington. It had been reported that OPEC + could add 800,000 bpd in November and zero barrels in December, but the group ultimately decided to keep the rate of additions unchanged.
Related: WTI Crude Oil Price Hits Highest Level in 7 Years
Therefore, Brent raw finished trading Monday at over $ 81 a barrel, with West Texas Intermediate at nearly $ 78 a barrel. As of this writing, both were even higher after falling slightly following the market’s initial reaction to the OPEC + announcement.
The demand for oil is expected to continue to rise in the coming months, not only due to the continued global economic recovery, but also due to the energy crisis that has driven natural gas prices to such a high level. that it is now cheaper for some utilities to switch to petroleum products. gas to generate electricity. According to Aramco, this crisis could lead to an additional demand for oil of half a million barrels per day.
The supply, meanwhile, remains limited, and it is not only OPEC +’s fault. US oil producers have shown remarkable restraint against the backdrop of recovering oil prices, prioritizing shareholder returns over production growth. And that priority will remain, according to the CEO of Pioneer Natural Resources.
“Everyone will be disciplined, whether it’s $ 75 Brent, $ 80 Brent or $ 100 Brent,” Scott Sheffield Recount the Financial Times. “Every shareholder I’ve spoken to has said that if somebody gets back to growth, they will punish these companies.”
“I don’t think the world can count on American shale very much,” he said. “It’s really under OPEC control,” he added.
No wonder, then, that oil short positions fell to their lowest since late 2019, Reuters’ Kemp reported, as further bearish positions added 41 million barrels of oil equivalent during the week. last. This could also continue this week, as there are currently few bearish factors at play for oil.
Related: The Real Reason OPEC + Refused To Boost Production Further
It is true that the British Prime Minister has declared that all electricity in the country would be produced from clean energy sources by 2035 and that the European Parliament has urged it is up to the Commission to reduce the EU’s dependence on Russian gas, but for now this is both wishful thinking rather than reality.
Short-term outlook for oil prices remains bullish
In other words, the short-term outlook for oil prices is rather bullish. A nuclear deal between the United States and Iran could limit the potential for an increase in oil, but that deal is still far from certain as the two sides have yet to meet for another round of negotiations.
A shift in priorities in the US shale would also have a downward effect on prices, but from what the CEO of Pioneer told the FT, this is unlikely to happen, at least among state-owned companies in the field. Small private independents could increase production to take advantage of the price trend, but it remains to be seen how quickly this would affect world prices.
By Irina Slav for Oil Octobers
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