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Oil: Sentiment And Speculation Drive Recent Price Hike

By Ellen R. Wald, Ph.D.CommoditiesOct 14, 2021 05:52AM ET
www.investing.com/analysis/oil-sentiment-and-speculation-drive-recent-price-hike-200605015
Oil: Sentiment And Speculation Drive Recent Price Hike
By Ellen R. Wald, Ph.D.   |  Oct 14, 2021 05:52AM ET
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Why is WTI and American crude oil suddenly priced so high? Prices were below $63 less than two months ago and this week WTI surpassed $80 per barrel, reaching its highest level since 2014 when the last major price adjustment was in progress.

Let's focus on that quandary and take a closer look at what's really affecting prices. And as we will see, the rise in price is more an issue of sentiment and speculation, than a reflection of supply-demand fundamentals.

WTI Weekly TTM
WTI Weekly TTM

Debunking The Supply-Demand Argument

It is true that demand did increase this summer, and stores of crude oil and gasoline did draw down. However, this trend is now reversing. According to GasBuddy data, gasoline demand in September fell 3.35%. The economy is still impacted by the COVID virus, and there are strong forecasts indicating economic hubs in the northern U.S. will face another wave this winter.

Moreover, refinery utilization last week was 89.6%, according to the EIA. The EIA showed a gasoline build too. These data do not indicate a supply shortage currently nor in the near future.

Also, production from the Gulf of Mexico—which had been impaired by Hurricane Ida in August—was finally fully restored a couple weeks ago. It made sense for the Ida outages to push up prices in August and September. Yet, this is not a good argument for rising prices in October.

Shale Firms Are Not Increasing Production

Shale firms have caused market sentiment to push for higher prices in two ways: 1) large shale firms have not returned to pre-COVID production levels like the market initially expected they would, and 2) shale executives have said recently they are not likely to increase production even at much higher prices.

Pre-COVID, U.S. oil production peaked at 13.1 mbpd. The most recent numbers show U.S. production at 11.3 mbpd. The market expected more by now. Moreover, shale firms are strongly indicating that they have no intention of raising production in this business climate, regardless of the heights reached by WTI. Market movers see this as a force to push prices up.

Fear Of A Natural Gas Shortage

Some in the market fear that there is a coming natural gas shortage in the United States. Europe has already seen natural gas shortages, and the White House is now warning that U.S. heating bills this winter could be more than 50% higher. If there is a shortage of natural gas in the United States, many natural gas power generators (that produce electricity) could switch to oil as their fuel. Typically, natural gas can be the source for about 40% of all U.S. electricity generation.

Speculation

Speculation is always a driving force in commodities markets. Institutions and people invest to see monetary returns, and right now the U.S. equities market is not doing well. Investing in the oil market has been much more lucrative over the last two months.

Oil: Sentiment And Speculation Drive Recent Price Hike
 

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Oil: Sentiment And Speculation Drive Recent Price Hike

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Comments (17)
Juan Luis Jiménez
Juan Luis Jiménez Oct 15, 2021 12:36AM ET
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"The EIA showed a gasoline build too". I think it was a draw. However, it doesn't affect your point.
Chris Tradesman
tueltime1903 Oct 14, 2021 4:28PM ET
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I project demand will increase 200% and production will increase 20%. I'm an expert, I can predict the future. lmao
Chris Tradesman
tueltime1903 Oct 14, 2021 4:21PM ET
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Wti was negative 37 dollars April of last year, with storage at 492, now it's at 430 and there is a crisis with 81 price tag. That's a 118 dollar swing. no speculation here.lol
Chris Tradesman
tueltime1903 Oct 14, 2021 4:17PM ET
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no speculation here.
Chris Tradesman
tueltime1903 Oct 14, 2021 4:14PM ET
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What no way, there's 2.00 of speculation in NG and 20 in wti. That's crazy, I thought there was an energy crisis and rampant inflation. Everyone in the media said it was so. They said we have a supply and demand problem. What's that you say? NG storage is 4% lower than the 5 yr avg. OMG. That's why the price is 120% more than the 5 year avg price.
John lee Pettimore
JohnLeePettimore Oct 14, 2021 12:39PM ET
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LOL...why not start her chart in 2014 when oil was 108$/bbl..then you can make a great case for how good we have had it and still have it good.
Jimmy Smith
Jimmy Smith Oct 14, 2021 11:15AM ET
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Imagine if Trump had done to the oil industry what Biden did when taking office. His name would have been printed 30 times in this article. Journalism is truly dead.
Cory Larson
Cory Larson Oct 14, 2021 10:38AM ET
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Disingenuous much? Geesh. Demand is projected to surpass pre covid levels and long term continue to go up. We aren't prepared to eliminate it, but many won't except that. Let's continue to make funding and access tougher to obtain, paint a bleak future, and throw on some additional trades. That'll teach um! smh
Michael Song
Michael Song Oct 14, 2021 10:09AM ET
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wrong analysis..nothing to do with speculation but only a supply crunch with increasing demand..this speculation is Joe dementia rhetoric and sadly the author echoes it...
frendy glasser
dejong099 Oct 14, 2021 7:38AM ET
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When a market stays bullish in the face of bearish news or bearish fundamentals. That is a very strong case for more bullish momentum. (The opposite is true as well - see gold’s behavior in spite of bullish fundamentals).
michael engel
michael engel Oct 14, 2021 7:31AM ET
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WTI futures weekly : Sept 22 2008 fractal high to today.
PurPl Cello
PurPl Cello Oct 14, 2021 7:30AM ET
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lol? that's it ? she's obviously bearish and not neutral
Jiacheng Liang
Jiacheng Liang Oct 14, 2021 6:47AM ET
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GoM is fully restored? Might wanna check with Shell
soho electronics
soho electronics Oct 14, 2021 6:45AM ET
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game of tug of war between the bears and the hawks
simone scelsa
simone scelsa Oct 14, 2021 6:19AM ET
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Disclaimer: the author is a perma-bear for oil.
Meru Pet
Meru Pet Oct 14, 2021 6:19AM ET
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"Shale Firms Are Not Increasing Production" ? permabear ?
Onyeka Ojinaka
Onyeka Ojinaka Oct 14, 2021 6:19AM ET
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what is perma-bear please?
Meru Pet
Meru Pet Oct 14, 2021 6:19AM ET
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always for a bearish market (when the market goes down).
ian salon
ian salon Oct 14, 2021 6:01AM ET
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Dr. Wald .. based on your writing oil could go into the 90s??? seems like all arrows 👉 towards higher crude prices... how high do you think the ceiling is?
Paul Smith
Paul Smith Oct 14, 2021 6:00AM ET
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Cheap oil and gas wont help transition to clean energy and EVs. Need to make using gasoline engine too expensive.
Omaga Paul
Omaga Paul Oct 14, 2021 6:00AM ET
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good
 
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