The Oil Market Shows Signs of Strength

Crude Oil Prices Begin to Recover

Crude oil prices have reached their highest prices since close to the start of the COVID-19 pandemic. This is a result of gradually recovering demand as well as production limits.

Brent-crude futures have climbed by over 50% since the end of October, and they topped $60 per barrel for the first time since the coronavirus slashed demand for oil in early 2020. Futures for West Texas intermediate climbed above $55 per barrel last week for the first time in more than a year.

Demand for Oil and Energy Stocks Climb

After facing significant hardships in 2020, energy stocks have been the most successful performers on the S&P 500 in 2021. These stocks include ExxonMobil (XOM) and ConocoPhillips (COP).

This recovery for oil and gas producers has been faster than many analysts anticipated. Large stockpiles of oil which built up during the early months of the pandemic have been depleted more quickly than was expected. Since the peak of the energy market crisis in April, OPEC and its allies have cut production by a cumulative 2.1 million barrels of oil. There is not a shortage of oil currently, but as demand picks up and production stays low, the amount of excess oil is shrinking.

Zooming Out

The oil market is recovering against a varied economic backdrop. Data released last week showed that the US added 49,000 jobs in January after payrolls dropped sharply in December. This is a positive trend, but shows that it could be a long time until the labor market fully recovers from the pandemic. This could impact Americans’ disposable income and demand for oil.

Analysts are also considering the possibility of an increase in oil exports from Iran, which could cause oil prices to drop. Additionally, though vaccine rollout efforts will likely help demand for oil recover in the long term, concerns about new coronavirus variants could impact demand in the short term.

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