Don’t Look Now, But Oil is Making a Comeback

At the onset of the pandemic, oil prices crashed. Do you remember when WTI couldn’t be moved out of the delivery point in Cushing? Over in Europe, we wondered what happened? How could crude oil prices go negative? Could they go negative? Well, yes, now we know. Demand plunged in 2020. But now, we see something impressive. A revision of demand expectations.   Don’t Look Now, But Oil is Making a Comeback Dear Investor, At the onset of the pandemic, oil prices crashed. Do you remember when WTI couldn’t be moved out of the delivery point in Cushing? Over in Europe, we wondered what happened? How could crude oil prices go negative? Could they go negative? Well, yes, now we know. Demand plunged in 2020. But now, we see something impressive. A revision of demand expectations. Let’s take a look at the oil price recovery, shall we? Look Beyond the United States I encourage readers to remember that it’s a big world. We’ve seen oil demand recover in various places across Asia. At the same time, Saudi Arabia led to OPEC production cuts, a global oil cartel that aims to manipulate prices to benefit its members. Meanwhile, U.S. oil production did fall due to colder weather conditions across Texas. With the prospect of the pandemic ending, oil prices are going higher on demand expectations, not supply expectations. Positive Outlook for 2021 What should we expect for global demand? The U.S. has a very robust agency called the Energy Information Administration (EIA). Their reports are critical. Many institutions rely on this data to set their models. Well, the EIA expects that global oil demand will exceed supply this year. What happens when demand is higher than supply? Basic economics says that prices rise. The pandemic will continue to impact demand somewhat in the 1st half of 2020. Nevertheless, economic output is expected to pick up again and boost demand. At the same time, both the OPEC countries and their partner countries have committed to limiting production. Oil production will also fall in the USA. Against this background, the IEA expects excess demand. Likewise, industry experts at Goldman Sachs argue that demand could reach pre-crisis levels as early as July while supply remains limited. Thus, oil prices could rise to $75 per barrel in Q2. Oil Stocks Are Rising This price increase also means that oil stocks are on the upswing again, enticing investors with a reinvigorated earnings outlook and the prospect of continued high dividends. Particularly in times of low-interest rates, oil stocks thus appear increasingly interesting again as dividend-bearing securities. Investor Warren Buffett must have thought so too. He caused a stir with his recent purchase of Chevron shares worth over $4 billion. Even though the black gold business promises profits again in 2021, the industry is facing profound change. The Corona pandemic showed how dependent most corporations are on a high oil price and growing demand. Only groups like OMV were able to post profits in the crisis year, as their business is already geared up for the future. In the context of climate neutrality and in times of high volatility in the oil price, the companies that have focused on gas, biofuels, and renewable energies at an early stage are ahead. On Thursday, Shell will release its annual recap on environmental expectations for the firm moving forward. I will read it with great interest. So too will Garrett. Look for his recap on this report and the price of oil next week. Enjoy your day, Dr. Gregor Bauer PS: We are always seeking your feedback to make Haven Investment Letter the best source of market information. What do you think so far? What would you like to see? Please take a moment and [send us your thoughts](mailto:feedback@godesburgfinancialpublishing.com). 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