Why various factors have pushed up the oil price

Why various factors have pushed up the oil price

02 November 2021Reading time: 3 minutes

In mid-March this year, we already wrote about the expectation that the global vaccination programs would gradually reduce the lockdown measures, with the result that the demand for oil and thus the oil price could be stimulated. The idea was that consumers would travel by car and by plane more often. That indeed seems to be the case. After more than a year of declining fuel demand, gasoline consumption in the United States, the world's largest fuel consumer, is back in line with the five-year average.

Another actuator for the higher oil price is the gas price. The International Energy Agency (IEA) stated in mid-October, that the very high gas price is leading to more demand for oil. The gas price has risen even more than the price for crude oil and as a result, industrial companies in particular are switching from gas to oil sooner if possible.

Meanwhile, there seems to be little changing on the supply side at this moment. Early October, it became clear that the oil-producing countries which are member of the OPEC+ will not increase their production faster than previously planned. OPEC+ currently produces about 32 million barrels per day and aims to increase this by another 0.4 million barrels per day in November. This production increase will be continued until at least April 2022.

U.S. energy companies even reduced the number of oil and natural gas platforms for the first time in seven weeks. In the week of October 22, the number fell by one to 542. On an annual basis, the total number of oil and natural gas platforms has increased by 255, but the total number of platforms still remains more than 30 percent lower than at the beginning of 2020.

The weather also affects the oil price. Tropical Storm Ida recently damaged refineries in the Gulf of Mexico, shutting down oil production. In addition, winter is approaching, which could also lead to higher demand for gas and thus push up both gas and oil prices.

All these things have led to the fact, that the oil consumption could return to pre-corona levels of 100 million barrels per day at short notice. It remains to be seen how the oil consumption will develop in the coming years. The IEA expects oil demand to decline from 2030, if the current policies does not change.

Oil price development

A barrel of Brent oil cost USD 86.19 at the end of October (25-10-2021), where it was USD 78.72 one month ago. This was the highest price since October 2018. Analysts on average, believe the oil price could move towards USD 90 a barrel by the end of this year, only to remain around the same level in subsequent years.

The future oil price is subject to several political, industrial and sector specific as well as economic factors. Investors should consider these risks when making their investment decisions. Developments can be different at any time than investors anticipated on, which could result in capital losses.

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24/01/2022 02:48:14