After the historic lows of 2020, the last few weeks have seen oil prices tentatively recover, driven by vaccine news and tight production controls globally. Describing the world as entering a new normal quickly became a cliché last year, but the reality is that whether we like it or not, the oil and gas sector is unlikely to return to business as usual as we understood it in 2019. It is time to accept that the new normal has become business as usual.
The price of oil has clambered back to price levels last seen in January 2020, before the impact of the Covid-19 pandemic began to be felt in earnest. This is superb news for everyone involved in the oil and gas sector and underscores what I have been saying for some time: despite the negative headlines, the sector remains an important part of a diverse investment portfolio.
The reasons for the price rally, the longest since early 2019, are not too difficult to fathom. As vaccines spread around the world and start to break viral infection chains, I am increasingly seeing a potential end to the pandemic’s global economic havoc. Oil is the lubricant that makes the economy move, so the recovery of the economy is likely to lead to rises in the price of oil.
The second reason is that several producers, weary of over confidence, have said that they will be keeping a tight rein on production for the next few months. This is understandable given the way that inventories struggled to maintain equilibrium during the first wave of economic lockdowns during in early 2020.
Greet the dawn with caution
The recovery of oil prices is something to celebrate, it suggests that there is light at the end of what has undoubtably been a long, dark tunnel. There’s a long way to go though, with some fast-spreading new variants of the virus causing concern among medical experts around the world. This is likely to be part of the reason why, after some initial exuberance, the price gains in oil have been tempered.
It seems unlikely that we will to return to what we used to think of as business as usual in the oil and gas sector. Finding the opportunities in the new normal is going to force us to adapt and find new strategies. It’s going to be a challenge, but that’s what makes the markets endlessly fascinating.
About the author
Kay Rieck has been active on the investment side of the oil and gas sector for more than two decades. Starting his career as a financial adviser and stockbroker on the New York Stock Exchange, he quickly developed an interest in natural resources and associated assets building his expertise with investment banking and asset management roles at the New York Board of Trade and the Chicago Board of Trade. Utilising his exceptional network of global contacts, he started his first exploration and production company in the US in 2008, selecting investments across the Haynesville Shale, Permian basin, Eagle Ford shale and elsewhere that offered exceptional prospective returns.