Oil prices have risen steadily in the past three weeks, with Brent Crude rising steadily from $64 in April to $68 today, 6th May.
Oil prices have remained fairly steady since the 1st of April OPEC+ meeting where the organization voted to ease production cuts. The fact that prices responded positively despite an increase in supply means there is a significant demand for oil to be met.
A $70, oil is within the target of what investment banks like Goldman Sachs, Morgan Stanley, etc. predicted towards the middle of the year. As more countries approach their vaccination targets, it is fair to say that oil prices will continue to rise despite India’s current covid-19 struggles.
What are the factors behind the oil price hike?
Asset Rotation
The general consensus is that asset rotation by money managers is driving the commodity price up. Over the past few weeks, there has been a sell-off in the equity market to cryptocurrency and commodities, as demonstrated by the surge in the price of lumber and copper.
Increasing demand for travel and heating
Travel has picked up towards the second quarter of the year and this has pumped up demand for crude oil by aviation stakeholders who need jet fuel to power their airlines. With the EU discussing the possibility of opening up for tourists and holidaymakers, airlines, aviation companies and travel agencies are in for a busy summer.
Another unexpected driver for rising crude oil prices is the weather. Many countries around Europe are still experiencing heavy snow in May. This typically drives the demand for oil and surges in oil prices.
There have been loud shouts for $100 per barrel of crude oil, with Bloomberg reporting an increase in $100 call options. Although, this would be a tough task as India struggles with the coronavirus. Stories about how Seychelles, the most vaccinated nation, is still struggling with COVID-19, proves the worst is yet to be over.
At the time of writing this report, WTI is at $65 and Brent is at $68.
