Driven higher by unexpectedly high demand and catastrophic hurricanes halting production, oil prices rose for a fifth-straight day on Monday, hitting their highest levels in three years as analysts point out cold winter weather and a busy pandemic travel season should only boost prices further.
The price of U.K. oil benchmark Brent Crude and U.S. West Texas Intermediate jumped about 2% apiece Monday morning to $79.56 and $75.35 per barrel, respectively—marking each of their highest levels since U.S. sanctions on Iran drove oil prices to four-year highs in October 2018.
Oil prices have surged about 10% over the past month as Hurricanes Ida and Nicholas swept through the Southeast and shut down production in the Gulf of Mexico for weeks.
The shutdowns effectively cancelled out the impact of modest production hikes from international producers earlier this summer, Goldman Sachs analysts wrote in a Sunday note, calling Ida the “most bullish hurricane” for oil prices in U.S. history.
The analysts said global oil demand has recovered from the delta variant-spurred spread of Covid-19 more quickly than they anticipated this year, creating a “larger than expected” gap between oil supply and demand.
Additionally, forecasts calling for a colder-than-usual winter in the northern hemisphere could mean added demand for heating oil, Goldman noted, upping its year-end forecast for Brent Crude prices from $80 to $90—suggesting prices could rise another 12% in the next three months.
In a morning note, Oanda analyst Edward Moya agreed oil prices are “on a one-way street headed higher,” adding that U.S. WTI prices could also hit $80 before year’s end as a steady decline in Covid-19 cases ushers in a stronger-than-expected holiday travel season.
60%. That’s how much the price of WTI oil has surged this year alone, while the price of Brent Crude has climbed about 50%.
What To Watch For
In its weekend note, Goldman cited potential new Covid-19 variants as a risk to oil demand that could curb rising prices. The bank, however, doesn’t expect prices to dip back down to $80 until the fourth quarter of 2022.
Oil producers this summer have been careful to ramp up supply after excess inventories drove prices down to negative territory for the first time in history last spring. That happened after an allout price war erupted between oil-producing giants Russia and Saudi Arabia in March 2020—just as travel demand began to plummet during the coronavirus outbreak. Pricey-to-maintain storage tanks soon filled up with no buyers, and the price of one American oil futures contract plunged below zero in April 2020. In July, oil producers—still wary about the lingering pandemic—agreed to return to pre-Covid oil production levels by September 2022.
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