The director of the Schork Group, Stephen Schork, provides an insight into the rise in oil prices.
OPEC producers and their allies, led by Saudi Arabia and Russia, may be underestimating the resilience of U.S. shale, according to an analyst.
The so-called OPEC + group is betting that North American producers will be late when drilling and pumping new wells, allowing OPEC and its allies to have already increased their production.
“The more prices go up and the more they stay there, the more likely that calculation is going to change,” wrote John Normand, head of cross-asset fundamental strategy at JPMorgan Chase & Co.
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West Texas Intermediate crude, the US standard, last week marked above $ 67 a barrel for the first time since November 2018, as the discovery of several COVID-19 vaccines has allowed the global economy to reopen at a pace faster than previously expected.
| Ticker | Safety | Last | Change | Change % |
|---|---|---|---|---|
| USE | UNITED STATES OIL FUND LP | 40.47 | -3.35 | -7.64% |
The current price level marks a stark contrast to the – $ 36.73 that was reached in April, while Saudi Arabia and Russia struggled for prices and blockages with the aim of slowing the spread of COVID-19 led the global economy to a standstill.
A truce in the price war between Saudi Arabia and Russia led to a historic deal that reduced global production by 9.7 million barrels a day, or about 10%. These cuts were reduced to 7.2 million bpd in January, with Saudi Arabia agreeing to a voluntary cut of 1 million bpd.
At these prices, there is a “vast group of operators in a good position to increase activity” in the second half of this year and to increase volumes in 2022, Normand wrote.
But trading with WTI above the $ 60 a barrel level is not a sure thing. The Energy Information Administration on Wednesday raised its 2021 WTI price forecast by 14% to $ 57.24 a barrel. Its price forecast for 2022 has been increased by 6% to $ 54.75.
WTI plunged 7.12%, to $ 60 a barrel on Thursday, with rising bond yields and some hiccups at the vaccine launch weighing on prices.
But OPEC has some factors working in its favor.
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US oil producers “may be a little shy about starting to inject more capital into the market until it really looks like a $ 60 recovery is here to stay,” said Stewart Glickman, energy analyst at CFRA Research in New York. .
In addition, strong rates of decline in oil slicks such as the Permian Basin in western Texas and eastern New Mexico make it difficult for companies to increase production, at least in the first year, without spending “a decent amount of money. ”, He added. “This works in favor of OPEC.”