US oil prices hit 2-year high as demand soars

Summary

  • Oil demand is rising as covid restrictions are eased, and OPEC cuts production.
  • Oil demand will continue to grow through 2026 as supplies get hit.
  • Crude oil remains the only option until green energy is explored effectively.

Crude oil prices in the US hit US$71.48 a barrel on Monday, June 14, the highest in the last two-and-half-years. 

Oil prices have doubled since October last year and are expected to remain high as demand continues to rise with the easing of business restrictions. Rapid vaccination has helped reduce the risk of the virus' mutation in the US.

The Organisation of Petroleum Exportation Countries (OPEC) decision to keep the production level constant may also have contributed to the price rise.

Many traders are opting for options that allow holders to sell or buy an asset at specific prices due to fear that prices of crude oil might hit US$100 next year.

Source: Pixabay.

Also read: 10 Hot Green Stocks To Explore This Summer

High oil prices

According to the International Energy Agency (IEA), oil prices will remain high even if OPEC increases production because the energy demand is likely to remain elevated until 2026.

In addition, there will be a drop in expenditure on crude oil production so much that companies might struggle to meet the demand, analysts say.

They claim that crude oil demand would rise over the next decade, mainly for transportation and petrochemicals used in making household products.

However, not all subscribe to this view, as some observers claim that prices may decrease as more people opt for green energy. They cite examples of increased government and corporate spending on solar, wind, and other renewable energy projects to back their claim.

Production decline

Spending on crude oil production fell to US$300 billion last year, less than half compared to the figures in 2014. The gap is likely to increase this year.

The demand-supply imbalance will continue to drive up the price. Also, the demand would increase as more people starts to travel after the covid curbs.

Companies are struggling to deliver cash to shareholders who are worried about the future of the oil industry as investments in new projects decline.


Also read: Why Inflation right now could add fuel to income inequality


Stockholders' returns and shrinking investments in production activities continue to be a challenge for many big companies.

Comment


Disclaimer