Energy prices continue to show strength. With CNBC’s Melissa Lee and the Fast Money traders, Tim Seymour, Steve Grasso, Guy Adami and James McDonald. For access to live and exclusive video from CNBC subscribe to CNBC PRO: https://cnb.cx/2NGeIvi
Oil prices could temporarily spike to $80 per barrel or more this summer as demand comes roaring back.
The reopening economy has already sent crude up about 40% since the start of the year, but a surge in driving by Americans, as well as an increase in goods transportation and air travel, could pressure prices further.
For consumers, that means the typical early summer peak in gasoline prices could come later in the season. Unleaded gasoline was $3.04 per gallon on average Wednesday, about a penny higher than last week but more than 50% higher than a year ago, according to AAA.
Brent futures, the international crude benchmark, settled up 1.6% at $71.48 per barrel Wednesday, the highest since Jan. 8, 2020. West Texas Intermediate futures for July were 1.6% higher at $68.83 per barrel, after hitting a high of $69.65, the highest since Oct. 23, 2018.
“Demand is ramping up very quickly because everybody’s driving, and we have the reopening of Europe, which is really starting to happen,” said Francisco Blanch, global commodities and derivatives strategist at Bank of America. “India seems to have hit an inflection point, in terms of cases, which in my mind could mean you also get a return of mobility.”
Uncertainty around higher prices
Energy analysts agree the world is in for a period of higher prices, but they do not agree how high or for how long. Blanch said Brent has already hit his $70 target for the quarter, but he has a much more bullish longer-term view than others.
“We think in the next three years we could see $100 barrels again, and we stand by that. That would be a 2022, 2023 story,” Blanch said. “Part of it is the fact we have OPEC kind of holding all the cards, and the market is not particularly price responsive on the supply side and there is a lot of pent-up demand … We also have a lot of inflation everywhere. Oil has been lagging the rise in prices across the economy.”
Members of OPEC and their allies, a group known as OPEC+, are gradually returning oil to the market. They agreed to implement their previously planned production increase of 350,000 barrels a day in June and another 450,000 barrels a day starting in July. Saudi Arabia also agreed to step back from its own cuts of about a million barrels a day, which was put in place earlier in the year.
OPEC+ had agreed in April to increase output by more than 2 million barrels a day by the end of July.
The U.S. industry is producing about 11 million barrels a day, down from about 13 million before the pandemic. But analysts say it’s not clear how fast or whether U.S. companies will restore that production.
“The sensitivity of producers to price changes has declined because of capital discipline,” said Blanch. He said there is pressure on companies to be cautious in how they use capital after the collapse in prices last year.
“Right now we’re in a position where prices are rising, companies are reluctant to invest,” Blanch said. “They are paying down debt and increasing dividends.”
He said there is also pressure on corporate boards to divest hydrocarbon assets and to work toward net zero on carbon emissions by 2050. “You have two major forces hampering capex in the energy sector right now,” Blanch said.
» Subscribe to CNBC TV: https://cnb.cx/SubscribeCNBCtelevision
» Subscribe to CNBC: https://cnb.cx/SubscribeCNBC
» Subscribe to CNBC Classic: https://cnb.cx/SubscribeCNBCclassic
Turn to CNBC TV for the latest stock market news and analysis. From market futures to live price updates CNBC is the leader in business news worldwide.
The News with Shepard Smith is CNBC’s daily news podcast providing deep, non-partisan coverage and perspective on the day’s most important stories. Available to listen by 8:30pm ET / 5:30pm PT daily beginning September 30: https://www.cnbc.com/2020/09/29/the-news-with-shepard-smith-podcast.html?__source=youtube%7Cshepsmith%7Cpodcast
Connect with CNBC News Online
Get the latest news: http://www.cnbc.com/
Follow CNBC on LinkedIn: https://cnb.cx/LinkedInCNBC
Follow CNBC News on Facebook: https://cnb.cx/LikeCNBC
Follow CNBC News on Twitter: https://cnb.cx/FollowCNBC
Follow CNBC News on Instagram: https://cnb.cx/InstagramCNBC
https://www.cnbc.com/select/best-credit-cards/
#CNBC
#CNBCTV