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Since the Saudis lopped from the head of oil price support in December 2014, energy investors – as well as energy companies and also the thousands of Canadians who work with them, or at best used to – have lived via a long dark winter of Game of Thrones proportions.
IEA for the first time sees light at the end of oil’s ‘long, dark tunnel’
Oil prices may have passed their lowest point as shrinking supplies outside OPEC and disruptions inside the group erode the worldwide surplus, the International Energy Agency said.
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Yet in the last month, crude has begun to shine again. The cost of benchmark West Texas Intermediate has risen by 46 per cent since mid-February, finishing last week approaching the “psychologically important” threshold of US$40 a barrel. (Nowadays, it appears every $10 increment in the price of oil is “psychologically important.”)
Canadian investors have reaped the advantages. So far in March, the S&P/TSX capped energy index is up a lot more than 13 per cent, taking the broader index track of it, by more than five percent. The loonie has also recovered against the greenback, a minimum of a little, making every snowbird’s annual sojourn more affordable.
But will this springtime for oil last?
Well, it’s not hard to be pessimistic, for some reasons.
We have seen price jumps before, simply to be disappointed. (There is a rally last March, too, eventually pushing WTI to US$60 in June. After which it fell off a cliff again.)
The exchange oil futures has shown itself hugely sensitive to short-term data (not to mention headlines), which makes it difficult to rely on anything lasting. And at US$38.50 a barrel, we’re still a long way from where the cost being a year ago.
Still, the International Energy Agency’s newest monthly report, released a week ago, seemed to forecast sunnier days ahead.
In fact, the Paris-based IEA pointed to expected declines in non-OPEC production (especially in the Usa) this season, together with lower-than-anticipated output from Iran, as reason to point out that oil prices might, finally, have bottomed out.
But let’s put emphasis on “might.”
The IEA notes that the putative agreement between Saudi Arabia and Russia to “freeze” production – buzz over which has helped support the recent rally – probably won’t have an effect until the other half of the year. That kind of assumes, though, the agreement will: a) actually happen and b) actually mean something, instead of as being a largely meaningless bit of PR.
