Oil Prices Surpass $80 Per Barrel Amid Rebounding Demand

Oil Prices Top Seven-Year High

Oil prices climbed past $80 per barrel in intraday trading Monday as demand for oil continues to surge across the globe. At its current price, oil is trading at a high not seen in seven years. Since the end of October 2020, US crude prices are 120% higher.

Though prices for other commodities like copper are also climbing, the spike in oil and natural gas prices has been more significant. This year crude is on track to outpace copper by its largest margin since 2002. Oil is also besting an index of raw materials by its largest margin in more than 10 years.

Oil Companies Keep Supply at Bay

The rise in oil prices does not appear to be slowing. Shortages of natural gas and electricity are creating global outages and companies are slowing down production at plants, which is expected to drive more demand for oil as power plants look for alternatives to natural gas for generating electricity.

Even if consumers scale back on travel and consume less energy in the face of skyrocketing oil prices, crude prices are still expected to continue climbing. A big reason for these trends is pressure on oil companies to curb spending, limit the negative impact on the environment, and return money to investors. As a result, oil companies are not expected to boost supply enough to drive oil prices lower.

Other Factors Lifting Oil Prices

Some investors who previously avoided the energy sector because of the impact oil has on the environment and because of lackluster returns in the past are now trying to get back into the sector. Investors are working to ramp up their exposure to what is turning out to be one of the highest-performing investments of 2021. Of S&P groups, the S&P 500 energy sector has been a top performer, up 50% so far in 2021. Pioneer (PXD), Occidental (OXY), and Diamondback Energy (FANG) are leading the gains.

Oil prices have been surging since last fall and are only expected to increase more as we head into winter. It will be interesting to see if oil companies will increase supply eventually.

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