Crude oil prices rallied from early November until just last week. In fact, Brent Crude oil futures have rallied from around $39 a barrel to $58 a barrel in under 3 months. The imminent arrival of a vaccine and an easing of restrictions has boosted the demand for crude oil.
The forces of demand and supply move oil prices. The OPEC+ group is responsible for the supply of crude oil. Data from the last quarter of 2020 showed that there was a deficit of 2.3 million barrels of oil per day amid supply restrictions that the organisation had agreed on. In January, OPEC+ increased the output by 190,000 barrels a day according to surveys. This was largely in line with the agreement among the members to make up for the halted supply during the pandemic. OPEC members averaged 25.67 million barrels of oil in a day in January according to a survey conducted on shipping data.
This increase is reported to sustain for the next 2 months as there are parts of the world where there has been a resurgence of Covid19 cases. Thus, the demand is being moderated for crude oil and we expect it to rebound slower than expected given how long the vaccinations are expected to take. Oil prices will likely breach the $65 mark once demand is back in full swing by late 2021 and early 2022.
ASX Oil stocks have cut some of their losses in recent months on the back of the surging oil prices. However, they have stalled as well. Crude oil stocks that are well diversified will see lesser gains from high crude oil prices moving forward. Whereas, the opposite is true for those oil stocks that are not diversified. Short-term tailwinds are good for the commodity and for some of the top ASX oil stocks. In the long-term, the structural dynamics are shifting and we are expecting lower investments in crude oil. As the reliance on crude oil decreases gradually, oil stocks will again be exposed to falling oil prices.
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