restraints. It leaves the world facing a significant supply squeeze, higher energy costs and the risk of inflation, just as widespread vaccination allows economies to start emerging from the downturn caused by the pandemic.
“OPEC+ definitely risks over-tightening the oil market,” said Amrita Sen, chief oil analyst at consultant Energy Aspects Ltd. in London.
Brent has already rallied almost 30% this year to above $67 a barrel as OPEC+ kept production below demand in order to drain the glut that built up during the worst of the Covid-19 lockdowns. Without additional supply, that deficit will widen significantly in April, according to the cartel’s internal estimates.
The oil price has been rebounding in part because of a renewed demand outlook as the global economy reflates and also because supply growth has been both intentionally and unintentionally constrained.
The brief but traumatic trip below zero last year was a catalyst for OPEC members to be more amenable to supply discipline. They want to ensure prices stay at economic levels and that means somewhere in the region of $60 to $80.
It’s a gift for the shale drilling sector. Futures out to June 2022 are trading above $60. That’s an important breakeven for a significant quantity of unconventional supply. In about three months we can expect to see supply ramping back up from domestic US onshore sources.
This is a helpful graphic representation of how dependent shale production is on additional drilling. It’s both the key strength and weakness of the sector. Supply can be tailored to prices but is very interest rate sensitive.
Chevron hit a new recovery high today as it extends its recovery.
Royal Dutch Shell rallied to test the upper side of its evolving 12-month base formation.
Southwest Energy expects to see its P/E contract from 44 to 4 this year. The share is steadying in the 10-Year Treasury in Repo Market Below -3% Amid Deep Short Base region of $4 which coincides with the June peak.