The price of Brent crude oil has rocketed to more than twice the record-low it plummeted to in April, and it’s showing signs of continuing to rise further. Brent is often seen as a barometer for the general economy, reflecting the broader movement.
Although the global economy remains in a fragile state, there are early signs that there may be some semblance of recovery. This is echoed by Brent rising, with experts suggesting that it has scope to increase further.
So what does this mean for investors? How should you be spread betting on oil stocks? Here’s a closer look at the likely performance in the coming months.
Energy stocks look cheap
Although there has been recent strength in the oil prices, experts believe there’s plenty of upside left for investors to explore. Breaking through the $50 barrel mark in December was a crucial moment, revealing the market sentiment for the commodity.
Although the price of Brent has risen considerably since it bottomed out in April, there are lots of reasons to believe that it has much further to go. Right across the board, energy stocks are looking cheap, and with the economy showing green roots of recovery, there should be a steady growth coming in the months ahead.
The rebound isn’t complete
The latest oil surge could leave you to conclude that the profit has been taken, leaving little room for significant upward movement. However, although gains have been solid, the oil price is still a long way from what it was before.
Looking back at the price of crude in 2019, and in 2018 when it was higher still, the energy industry has a long way to go to recover its peak price. Some experts believe that even without further growth, there’s at least 60% left in the market – and that’s something that investors should be excited about.
Demand will climb, but supply could be scarce
Activity in the aviation market was severely restricted in 2020, but that’s expected to change in 2021 and beyond. Many flights are resuming with ticket numbers increasing, and that means there will be a renewed demand for fuel and oil.
The problem is that there has been a lack of investment in oil in 2020, and it will take a couple of years – minimum – to get back on track. With existing wells losing around 3.5% of their production levels every year, it’s hard for the market to keep supply flat at the best of times. The recession has led to lower investment in new wells than usual, and that could see dropping supplies against a backdrop of rising demand, leading to further increases in the price of oil.
Of course, there are no guarantees in the market at the moment, especially while the global economy is so fragile. However, the general consensus is on strength in energy, and particularly oil, with the market tending to be bullish, at least in the short-term.
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