Crude oil prices have been on a tear since bottoming in April 2020 at $6.50 per barrel, but oil prices have sustained their highs above $100 per barrel since the early days of the Ukraine war. The price of Brent crude, which is the global benchmark, ripped above $124.00 per barrel in late May, the highest levels since March 2022, shortly after Russia invaded Ukraine.
The big question is whether crude oil prices are going to remain elevated or whether oil prices are going to cool down. For oil prices to do either, there needs to be a catalyst. And right now, all of the signs point to continued strong oil prices.
At the end of May, the European Union agreed to ban 90% of its Russian oil imports by the end of the year. Europe is the biggest customer of Russian energy, accounting for 27% of the region’s imports in 2021.
The European block will need to make up that lost oil from somewhere; this includes sourcing additional oil from Africa, South America, and North America. In addition to high oil prices, shipping crude in from far away places will result in higher freight costs, which gets passed along to consumers.
Oil prices also remain elevated as Canadian and U.S. motorists gear up for the annual summer driving season. U.S. gasoline prices have extended their record levels to over $4.86 per gallon. And it’s just a matter of time until the national average crosses the $5 threshold. In places like Los Angeles, it costs more than $8.00 for a gallon of gas. It’s worse in Europe, where the price of gas has topped $9.00 per gallon in some places. Despite the eye-watering prices, demand remains resilient.
Meanwhile in Canada, the national average price for gas stands at $2.04 per litre. In Vancouver, gas prices were above $2.26 per liter. Gas prices are expected to go higher on stronger summer demand.
There is little governments can do right now to quench exploding oil prices. To bring oil prices down the world needs access to more supply, but that’s difficult to do.
In 2021, Russia accounted for 14% of the global supply of oil, and sanctions against Russian oil is starting to make an impact. In April, Russia shut off roughly one million barrels of oil output per day. That number could reach three million barrels of oil per day in the back half of 2022.
The Organization of the Petroleum Exporting Countries and its allies, known collectively as OPEC+, announced a new supply agreement to pump an additional 648,000 barrels of crude a day in July and August. Many OPEC+ members have already hit their capacity limits, which means production increases could be just half of the announced targets.
On top of that, Saudi Arabia, the largest contributor to OPEC+, increased its oil prices for most regions. Aramco, the country’s public petroleum and natural gas company, and also the world’s most valuable company, increased the price for Arab Light oil.
Other bullish factors include China’s relaxed COVID-19 lockdown restrictions and reopening the city of Shanghai. With a population of 25 million people, Shanghai is the economic center and global trade hub. The lockdown was only expected to last for nine days, but it lasted 65 days.
Over the last number of months, China has imposed restrictions on other cities too, including the manufacturing hub of Shenzhen and breadbasket of Jilin. The shutdowns were a bearish indicator, but with pandemic restrictions lifted, demand for oil is expected to grow even further.
Should demand for oil from China come roaring back, crude oil prices could retest the high of $139 per barrel from earlier in the year.
While most stock market sectors are taking a hit from rising interest rates, decades-high inflation, and fears of a recession, energy stocks continue to do exceptionally well. And there are more than enough bullish indicators to suggest crude prices will remain extraordinarily high for the rest of 2022 and into 2023. That doesn’t mean investors should shun other sectors and industries, in fact, the trading professionals at Learn-To-Trade.com can teach investors how to profit no matter what’s happening on Bay Street or Wall Street.
As Canada’s oldest and leading provider of stock market trading courses, the trading experts at Learn-To-Trade.com have taught thousands of investors, of every skill level, how to trade more confidently and profit more consistently. We understand that investors have different needs, which is why we provide a unique, Lifetime Membership that allows you to re-attend any part of the comprehensive program as often as you’d like.
To learn more about Learn-To-Trade.com’s stock market trading courses, contact us at 416-510-5560 or by e-mail at info@learn-to-trade.com.
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