Oil stocks have gained as crude has rallied,
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The price of oil has enjoyed a mini run of late, but that is just a precursor to a potential 36% gain from here, according to Bank of America. The winter could bring a surge in demand, while supplies are limited.
Brent crude oil, the international benchmark for prices, has risen just over 4% in the past month to more than $73 a barrel. Not only does the economic recovery remain on track, fueling growth in demand, but Hurricane Ida has temporarily reduced production in the U.S..
Oil stocks have begun to benefit. While the Energy Select Sector SPDR Fund (XLE) is down a tick in the past month, participating in the recent broader stock-market pain, it is up almost 4% since its low point during the selloff, reached on Thursday. The three S&P 500 stocks with the biggest gains Monday were oil producers Marathon Oil (MRO), APA Corporation (APA), and Occidental Petroleum (OXY), up 7.5%, 6.5%, and 5.8%, respectively.
Commodity analysts at Bank of America say Brent could hit $100 a barrel this year, though their target for the price is $75.
Central to that bull case is colder-than-expected winter weather. That could push demand for oil up by 2 million barrels a day, the analysts say. Currently, the U.S. Energy Information Administration forecasts global oil demand of 97.38 million barrels a day for all of 2021, so Bank America’s thesis implies a roughly 2% increase to full-year demand.
Supplies, of course, are the other side of the equation. Current global inventories of oil are at around 290 million barrels, a touch below the five-year average and lower than the more than 300 million seen at the start of this year. The Organization of the Petroleum Exporting Countries has been committed to limiting supply, even though it is upping production slightly. “OPEC+ is acting again to stabilize oil prices,” wrote Blanch.
Natural gas prices could keep rising as well, building on a surge of 33% in the past month, according to Bank of America. “Weather is quickly becoming the most important driver of energy markets,” wrote Bank of America analyst Francisco Blanch.
Write to Jacob Sonenshine at [email protected]
