U.S.-traded crude oil closed above $70 for the first time in two and a half years on Tuesday, another sign that oil has avoided the mini-slump hitting other commodities in the past few weeks.
West Texas Intermediate futures, the U.S. benchmark, settled up 1.2% to $70.05. It was the highest close since Oct. 16, 2018. Brent crude futures, the global benchmark, settled 1% higher at $72.22 per barrel.
Oil prices have gained as some investors consider the commodity a way to play higher inflation, but the move is also underpinned by more sustainable shifts. Demand is rising and supply is restrained, setting up a prolonged period of strength, analysts say. Stocks whose success is dependent on higher oil prices — some of which have more debt — have been outperforming as oil climbs.
Among the winners are Ovintiv (ticker: OVV) and Continental Resources (CLR), both of which have more than tripled from their 52-week lows. Analysts have been recommending that investors look for stocks that can outperform during an oil price spike, as well as those poised to return more cash to shareholders, like EOG Resources (EOG).
Oil is responding to better news about the coronavirus, according to OANDA analyst Edward Moya. “Crude prices rose after Dr. Anthony Fauci, the nation’s top infectious disease expert, noted that both the Pfizer and AstraZeneca Covid vaccines are effective against the Delta variant post two doses,” he wrote. “While the U.S. and large parts of Europe are in a robust crude demand recovery, a lot of the world is still struggling with Covid-19. Emerging markets are getting their hands on more vaccines and that is very positive for oil prices. Brazil’s health minister noted they have enough Covid vaccine doses.”
In addition, oil supply remains muted as producers are focusing on their most productive wells and delaying drilling in areas that may not be as profitable. OPEC is also holding back supply and allowing oil prices to keep moving higher.
Write to Avi Salzman at [email protected]
