Brent has moved up quite in line with expectations towards US$ 60 from a level US$ 53 about a month back. The rise in oil prices has been supported by several factors in the last three months. The most prominent factor is the output restrictions by OPEC + and more conspicuously by Saudi Arabia. The US crude inventories have been showing some decline and this is a factor which may increase the nervousness at the marketplace. The winter is strong and despite the pandemic large number of people took to the highways and moved out on holidays which itself propelled the demand for fuel as also heating devices, though temporarily. But the biggest hope has been the enhanced economic stimulus in the US as also Europe which could put more money in the hands of the people and could push up spending, and consequently oil demand too. The mass vaccinations programme too brought in greater optimism in people. There has been, no doubt, rebound of economic growth in the economies across the world, and this may result in improved demand for fuel. But with the pandemic still to come down in the US and most parts of Europe, there is a question mark on the level of pick up in oil demand. To a large extent, this may be compensated for by the much stronger rebound in India and China. But a full rebound may be quite far from here. One saving feature is that the US rig count which is a crucial variable to consider is gradually rising since the second half of 2020.
It is interesting to note that there are some forecasts which caution the markets about a possible correction in oil prices. They base their views on mainly three things. First of all, there is a strong case of alternate energy, and it is gathering pace mainly in transport and also domestic consumption. Second, the business itself has become less profitable compared to what it was in the last decade. It is a business which may not find any takers from a futuristic perspective as time passes by. Third, the traditional consumers or buyers of oil have run out of patience due to the excessive movements in prices which hits both producers and consumers as it moves to the two extreme levels on either side. However, considering all the factors, it may be a good option to anticipate much higher prices as full economic recovery becomes a reality over time.
