Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Oil: Sentiment And Speculation Drive Recent Price Hike

By Ellen WaldCommoditiesOct 14, 2021 05:52
ca.investing.com/analysis/oil-sentiment-and-speculation-drive-recent-price-hike-200490503
Oil: Sentiment And Speculation Drive Recent Price Hike
By Ellen Wald   |  Oct 14, 2021 05:52
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

Why is WTI and American crude oil suddenly priced so high? Prices were below $63 less than two months ago and this week WTI surpassed $80 per barrel, reaching its highest level since 2014 when the last major price adjustment was in progress.

Let's focus on that quandary and take a closer look at what's really affecting prices. And as we will see, the rise in price is more an issue of sentiment and speculation, than a reflection of supply-demand fundamentals.

WTI Weekly TTM
WTI Weekly TTM

Debunking The Supply-Demand Argument

It is true that demand did increase this summer, and stores of crude oil and gasoline did draw down. However, this trend is now reversing. According to GasBuddy data, gasoline demand in September fell 3.35%. The economy is still impacted by the COVID virus, and there are strong forecasts indicating economic hubs in the northern U.S. will face another wave this winter.

Moreover, refinery utilization last week was 89.6%, according to the EIA. The EIA showed a gasoline build too. These data do not indicate a supply shortage currently nor in the near future.

Also, production from the Gulf of Mexico—which had been impaired by Hurricane Ida in August—was finally fully restored a couple weeks ago. It made sense for the Ida outages to push up prices in August and September. Yet, this is not a good argument for rising prices in October.

Shale Firms Are Not Increasing Production

Shale firms have caused market sentiment to push for higher prices in two ways: 1) large shale firms have not returned to pre-COVID production levels like the market initially expected they would, and 2) shale executives have said recently they are not likely to increase production even at much higher prices.

Pre-COVID, U.S. oil production peaked at 13.1 mbpd. The most recent numbers show U.S. production at 11.3 mbpd. The market expected more by now. Moreover, shale firms are strongly indicating that they have no intention of raising production in this business climate, regardless of the heights reached by WTI. Market movers see this as a force to push prices up.

Fear Of A Natural Gas Shortage

Some in the market fear that there is a coming natural gas shortage in the United States. Europe has already seen natural gas shortages, and the White House is now warning that U.S. heating bills this winter could be more than 50% higher. If there is a shortage of natural gas in the United States, many natural gas power generators (that produce electricity) could switch to oil as their fuel. Typically, natural gas can be the source for about 40% of all U.S. electricity generation.

Speculation

Speculation is always a driving force in commodities markets. Institutions and people invest to see monetary returns, and right now the U.S. equities market is not doing well. Investing in the oil market has been much more lucrative over the last two months.

Oil: Sentiment And Speculation Drive Recent Price Hike
 

Related Articles

Oil: Sentiment And Speculation Drive Recent Price Hike

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email