Markets Reporter |Yahoo Finance|. The imbalance between oil supply and demand is likely to reverse going into the summer, says one analyst, precipitating higher oil prices.
“Currently, the global oil market is probably slightly oversupplied. It’s going to flip to being undersupplied sometime in the late second quarter or early third quarter,” Tortoise portfolio manager Rob Thummel told Yahoo Finance Live.
When the oil market is undersupplied, typically you see a positive price response. So we would expect oil prices to rise a bit,” said Thummel.
Crude prices have been under pressure recently, despite a production cut announced by OPEC+ last month. West Texas Intermediate (CL=F) and Brent (BZ=F) initially surged on the news but have since lost those gains.
WTI closed at $70.04 per barrel on Friday. Brent futures settled at $74.17.
Oil analysts anticipate a rise in demand as China’s economy reopens following strict Covid lockdowns last year.
“The whole world is waiting on when does the Chinese economy reopen. And it’s gradually reopening,” said Thummel. “We expect the demand for oil globally in China to grow and accelerate throughout the rest of this year.”
An oil worker drives a forklift truck towards a drill rig after placing some ground monitoring equipment in the vicinity of the underground horizontal drill in Loving County, Texas, U.S. November 22, 2019. Picture taken November 22, 2019. REUTERS/Angus Mordant
Thummel expects gas and oil-related stock prices to rise in tandem with crude. Year-to-date, they the S&P Energy Select Sector (XLE) is down 10%, underperforming the broader markets.
“We think at Tortoise it’s an attractive time to be looking at the energy sector because prices are probably low. They’re probably going higher. And that will just result in an uplift of all energy stocks,” said Thummel.
Ines is a senior business reporter at Yahoo Finance. You can follow her on Twitter @ines_ferre
What Determines Crude Prices?
Crude still plays an important role in the global economy despite the continued efforts to reduce its use and to find alternative green energy sources. In the early days, finding oil during a drill was considered somewhat of a nuisance as the intended treasures were normally water or salt. It wasn’t until 1847 that the first commercial oil well was drilled in the Absheron Peninsula, Azerbaijan. The U.S. petroleum industry was born 12 years later, in 1859, with intentional drilling near Titusville, Pennsylvania. (Drilling in the United States began in the early 1800s, but they were drilling for brine so any oil discovery was accidental).
While much of the early demand for oil was for kerosene and oil lamps, it wasn’t until 1901 that the first commercial well capable of mass production was drilled at a site known as Spindletop in southeastern Texas. This site produced more than 100,000 barrels of crude in one day, more than all the other oil-producing wells in the United States combined. Many would argue that the modern oil era was born that day in 1901, as crude was soon to replace coal as the world’s primary fuel source.
