If someone traveled through time back to 2019 and showed a picture of the current state of the commodity markets, no investor would have believed them.
It still seems rather unbelievable today, considering that the coronavirus pandemic has not ended and is continuing to have a negative impact on the demand for fuel, yet crude oil and natural gas have been doing exceptionally well these past few weeks.
Part of the reason why oil and gas prices are surging is seasonal. The arrival of fall in the northern hemisphere means shorter days and colder weather. This translates into more demand for heating and artificial light. The need for more energy always spikes around this time of year.
Yet, things are a bit extreme right now. Perhaps it is because of the ongoing coronavirus pandemic, which has been depressing the demand for fuel for over a year and a half now, but many countries, especially the EU member states and the UK seem underprepared this time around.
Moreover, OPEC+ has been surprisingly level-headed so far. The bloc has kept oil prices above $70 for some time, without much serious temptation to increase production quotas, which would have brought the price down a bit. Instead, by keeping the supply of crude oil limited, the OPEC+ members have alleviated much of the oversupply that troubled the sector for years, which is allowing oil prices to grow.
The situation with natural gas specifically is pretty tense because the European Union used up more of its stockpiles last winter, which was uncharacteristically long and cold, meaning most member states’ reserves are more depleted than expected at the start of this fall/winter season.
Crude oil prices have risen above $80, with the Brent crude trading around $82.65 and the WTI at $79.11 per barrel, as of this article’s composition. There are predictions that at this rate, oil prices can reach $100.
Natural gas has skyrocketed compared to oil, spiking to around $230 per barrel in the EU and $204 in Asia. These are the highest price levels for gas in over a decade. As long as supply from Russia remains limited, prices are likely to continue growing.
