Oil has been surging over the past month, gaining almost 30%. On Wednesday, January 20th, the black gold hit record highs of more than $86.60, its highest price since 2014. This has fueled speculation that oil will yet again reach highs of $100, maybe even more.
But wait!
This all seems like déjà vu. Almost three months ago, analysts were saying similar things. We saw an energy crisis developing before our eyes. There were natural gas shortages, winter temperatures just over the horizon, storms causing US oil production facilities to close, OPEC+ not willing to pump more oil and more.
Natural gas prices were soaring, so much so, that countries were turning to the lower-priced oil to fill their energy gaps. That sent oil prices surging. And the talk was would oil hit $100, maybe $150, especially considering the fact that the Delta coronavirus wave was fading and supplies were expected to be tight as economies were returning to normal.
And then Omicron
Menacing Omicron variant descended upon us at the end of November, and within a week, the energy crisis was no more. Demand for energy plummeted, with oil prices plunging around 20% and natural gas around 30% within a very short time.
Now, almost two months later, Omicron appears less menacing than the previous Covid-19 waves, and governments are returning to normal. Yet again, we see demand for oil surging and talk of oil reaching new highs.
Let’s figure this out
Investors are wondering: will oil rocket to more than $100? We just don’t know yet. There are still so many uncertainties.
As you follow energy prices, consider the following points:
- As economies return to normal after the Omicron wave fades, oil prices are likely to rise further.
- There were other geopolitical events driving oil prices higher, including the explosion of the pipeline from Iraq to Turkey, terror attacks on oil storage facilities in the UAE, and tensions on the Russia-Ukraine border.
- OPEC+ countries are staying the course in terms of their August 2021 output plan. Nonetheless, some countries are having difficulties meeting their pledged quotas.
- While oil prices are rising, natural gas price remains under $4, only slightly higher since its November plunge.
- Winter temperatures in Europe are not as bad as expected, and thus there is less demand for energy. Couple this with the fact that there has been an influx of natural gas to Europe.
- Natural gas prices remain stable despite delays in the Nord Stream 2 pipeline, and the Yamal-Europe pipeline sending oil eastward to Poland as opposed to sending oil to Western European countries.
The bottom line
Oil prices are surging, but we are in a different situation than we were in November. As the economy returns to normal, we could see pent-up energy send oil prices higher, but we may see some unforeseen events in the near future which could change everything. Just as Omicron did!