It feels like the market wants to see oil at $100 per barrel with Brent crude hovering around it already. Yesterday was the first time oil prices rise above $98 since October 2008, as the Brent touched $98.46 briefly in London before falling back to $97.77 while the light sweet crude (WTI) rose to $91.74 in New York.
We were expecting oil prices to test those levels but no so quickly, with $100 a barrel being only a matter of time. (Buy Oil Now?) The rally has been driven by the cold weather in Northeast US, drop in existing stockpiles, and the recent closure of the Alaska oil pipeline. Not to mention the rising speculation of slowing down production in the Gulf of Mexico by Obama’s administration by increasing the liability cap for damages when companies drill offshore. As for the long-term growth, the Energy Information Agency (EIA) states that global consumption of oil is expected to increase due to the resurgent demand driven by improving economies in both the developed and developing world. Forecasts also claims that oil demand is expected to reach 88.6m barrels a day during 2011 from 87.78m estimated last month. With the OPEC having no intention of increasing production and the fragile global growth, high oil prices can become a threat for the global recovery.
Naturally, the supply constraints and concerns of the leak sent a shiver down the oil markets pushing up prices of oil while holding down BP. BP stock took a beating as it owns a 46% stake in the Trans-Alaska pipeline and I believe the incident signals a buying opportunity for BP. Nonetheless, we aren’t exactly facing a major disaster similar to the Gulf oil spill as Alaska’s key pipeline has resume shipments and was pumping 400,000 barrels per day, almost two-thirds of its normal levels already.
Supply constraints are pushing up crude oil and increased global demand is expected to enable it to sustain elevated price levels; at the end of the day, BP will take part in the rally.
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