The oil market maintains upward momentum despite apparent caution by players around the twoyear highs. Brent is trading at 69.50, the area of this years peaks. Two years ago, in 2019, it failed to stay above 70 for long. So, this area acts as an important breaking point whose impact goes beyond the pandemic.
This week the bulls will likely try to storm this psychologically important level and the significant resistance of recent years. And in our view, the chances of a sustained rally above 70bbl. Brent is now much higher.
In recent years, the dynamics of oil are more a story of trying to find a supply balance at the global level. The expanded OPEC since 2014 has agreed to cut its production and revenues for the sake of price stability. America, in contrast, has used the situation to build up its share of the energy market until 2020. However, that seems to have changed.
Last year has dramatically turned the mood around. Before 2020 we saw a real shale boom in the industry production was financed by debt, and the favourites were the fastgrowing companies, despite their negative profit. Now investors see this industry as a cash cow, preferring companies with higher dividends and stable business.
Oil and gas production is becoming a tedious business, like coal mining or nuclear power, after the hype of previous years. Weekly data shows an increase in drilling activity in the US oil and gas sector. However, new rigs are only enough to maintain production at 11m BPD…