SCO - Short supply: Will crude oil reach $100 per barrel?

2023-09-15 07:21:03 ET

Oil prices have crossed $90 per barrel for the first time since November 2022, sending ripples through many parts of the economy. There are a variety of reasons for the upward climb, most notably the recent production cuts by Saudi Arabia and Russia, but the pace at which oil is ascending is becoming a bigger topic of discussion. After remaining below $80 per barrel for most of the year, WTI crude ( CL1:COM ) broke above that level in the summer - and has soared over 17% over the past three weeks - helping to raise costs on everything from transportation to manufacturing.

No peak yet: Resurgent energy prices are a particular headache for the Federal Reserve, which was recently celebrating some wins on the inflation front. In fact, U.S. consumer prices in August rose by their most in more than a year , driven by a nearly 11% increase in retail gasoline prices. A weakened Chinese economy was also thought to sap global oil demand, but supply appears to be the bigger problem, with oil and gas companies quick to point out the regulatory restrictions on their sector.

While releases from the Strategic Petroleum Reserve were commonplace in 2022, when Russia began its invasion of Ukraine, those drawdowns have brought SPR supplies to their lowest level in 40 years . If WTI crude ( CL1:COM ) would top $100 per barrel, the Biden administration would likely consider additional releases, but until then, there are some other options under consideration. Regular discussions are taking place with domestic producers and refiners, as well as international options like easing restrictions on exports from Iran or Venezuela.

SA commentary: "U.S. shale is running out of stream," declared Investing Group author Leo Nelissen . "We're not seeing peak oil but a significant decline in supply growth . Producers are seeing rapidly declining Tier 1 drilling reserves. They focus on free cash flow generation instead of production growth and reward investors through dividends and buybacks. They have learned their lesson - especially in an environment where new climate movements want to put big oil out of business."

ETFs: NYSEARCA: USO , NYSEARCA: UCO , NYSEARCA: BNO , SCO , USL , DBO , USOI , NRGU , OILK , USAI

More on crude oil

• Wall Street Lunch: U.S. Oil Breaches $90
• Production cuts by Saudi Arabia and Russia are a delicate balancing act
• Production cuts by Saudi Arabia and Russia are a delicate balancing act Commodity Roundup: Brent extends gains to a fourth session; gold steady after U.S. data

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