Brent crude oil, the international benchmark, hasn’t traded above US$100 per barrel since the heady days leading up to the global financial crisis. In other words, for more than 13 years.
The last time it traded above US$80 was back in October 2018.
Stymied by record level oil production from the United States, and driven by breakthroughs in shale oil production, Brent largely traded in the US$60–70 range since then. Right up until the end of January last year.
We all know what happened then.
COVID-19 entered the scene and demolished global demand for oil as air, land, and sea travel all but ground to a halt. By 24 April 2020, Brent was selling for US$21 per barrel.
Needless to say, ASX energy shares were walloped.
But as the price of crude has rebounded, so have the share prices of most ASX oil and gas companies.
Today, a barrel of Brent crude is trading for US$62.91. That’s up from US$51.80 since 1 January.
But crude prices could have much further to run.
Crude oil to US$100 per barrel?
Hayal Ahmadzada is Socar Trading’s chief trading officer. As Bloomberg reports, he expects to see global oil stocks, which swelled during the early months of the pandemic, to be depleted by northern summer.
According to Ahmadzada, Socar has already sold some 15 million barrels of oil it had stored earlier last year.
He also believes that today’s high steel prices will hinder oil companies from ramping up new supplies as the cost of new pipes and other steel-intensive materials for the industry has soared. “Ahmadzada comment “we may see a shake-out in that industry, due to very high steel prices”.
So when can ASX investors expect oil to reach US$100 per barrel again?
According to Ahmadzada:
I will not be surprised if we see $80 a barrel in summer or before year-end and above $100 a barrel in the next 18 to 24 months… It’s coming. Credit costs are much higher and the appetite for risk is much lower. The majors are cutting jobs and reducing capex. All the ingredients are there.
Two leading ASX energy shares
Australia has a number of listed companies working in the oil and gas industry.
Since the 23 March lows last year, the Oil Search share price has rebounded 133%. The Santos share price bottomed out on 19 March and has since rocketed 166% higher. By comparison, the S&P/ASX 200 Index (ASX: XJO) is up 50% from its own 23 March low point.
So far in 2021, Santos shares are up 14% while Oil Search shares are up 13%.
If Ahmadzada is correct and oil breaks through US$100 per barrel in the next 18-24 months, Santos, Oil Search, and indeed most ASX energy shares should enjoy some healthy tailwinds.
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Motley Fool contributor Bernd Struben has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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