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Oil stocks rally as Brent crude surges to two-year high

·Contributor
·3-min read
CROMARTY, SCOTLAND - SEPTEMBER 08: An oil rig is seen on September 8, 2020 in Cromarty, Scotland. Complaints from locals have spiked over the past few months as the downturn in oil and impact of Coronavirus forced a significant increase in unused rigs being stored in the Cromarty Firth. Between May 19 and July 01 19 formal complaints were made, compared to five in the 10 months prior. Complaints relate to light and vibrations from the platforms with residents also complaining of hearing the tannoy systems used on the rigs. (Photo by Peter Summers/Getty Images)
Traders are confident of an increase in demand for oil as restrictions brought on by the pandemic began to ease across the globe, and coronavirus vaccination programmes continue apace. Photo: Peter Summers/Getty Images

Oil prices pushed higher on Monday as Brent crude (BZ=F) prices soared to their highest level in more than two years, since April 2019.

In London, Royal Dutch Shell A (RDSA.L) and B (RDSB.L) shares were 2% ahead, leading the FTSE risers, also buoyed by rumours that it could be about to sell holdings in the US Permian basin, which accounted for 6% of its oil and gas output last year.

BP (BP.L) also rose 1.4% on the day while Tullow Oil (TLW.L) surged on the FTSE 250, climbing more than 8%.

It comes as traders are confident of an increase in demand for oil as restrictions brought on by the pandemic began to ease across the globe, and coronavirus vaccination programmes continue apace.

Brent crude climbed to its highest since April 2019 on Monday. Chart: Yahoo Finance
Brent crude climbed to its highest since April 2019 on Monday. Chart: Yahoo Finance

Brent crude, the industry benchmark, jumped 1% on Monday, touching $73.52 (£52.14) per barrel. US crude also climbed 1% higher to $71.50, its highest level since October 2018.

On Friday, the International Energy Agency (IEA) predicted that the world’s demand for oil is expected to rebound to pre-pandemic levels by the end of 2022.

The Paris-based body expects consumption to rebound by 5.4 million barrels per day (bd) this year as vaccines are rolled out and economies reopen. Consumption declined by a record 8.6 million bd in 2020 as the coronavirus pandemic took a hold.

It expects a further 3.1 million bd increase in 2022, to average 99.5 million bd with an increase at the end of the year that will surpass the level of demand before the COVID pandemic.

Countries outside the Organisation of Petroleum Exporting Countries and its allies (OPEC+) group are expected to boost output by 1.6 million bd next year, to exceed 2019 levels.

While, OPEC+ countries will have 6.9 million bd of spare capacity even after lifting production by 2 million bd over the May-July period.

Read more: IEA: Oil demand will exceed pre-COVID levels by end of 2022

“OPEC+ needs to turn on the taps to keep world oil markets adequately supplied,” the energy watchdog said, adding that rising demand and countries’ short-term policies contradict the call of the IEA to end new financing for oil, gas and coal in a stark report released last month.

OPEC + agreed on 1 April to gradually ease cuts to oil production between May and July and confirmed its decision at a meeting on 1 June.

“As the economy continues to recover from coronavirus, OPEC and its allies will need to increase supply to meet the surge in consumer demand,” Naeem Aslam, chief market analyst at Avatrade, said.

“Having said that, traders should keep in mind that the ongoing nuclear deal negotiations between the US and Iran are likely to take effect soon. Iran is in a strong position to increase its oil supply in a relatively short period of time, which could result in a significant retracement of global oil prices.”

Watch: Oil prices jump after OPEC forecasts increasing demand

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