Oil prices rises to 2-year high — what’s the impact for oil investors?
In the past week, oil prices reached another milestone — breaking $70 a barrel and setting a 2-year high. Oil prices are up 35% this year and traders are betting there’s more room to grow.
What’s the big deal? Throughout 2020, the rise of clean energy sparked conversations on the imminent death of oil — even big oil companies were forced to switch to clean energy.
Despite the growth in the clean energy sector, the demand for oil drove prices up as lockdowns expired.
- The Energy Select Sector SPDR Fund (NYSEARCA:XLE), an ETF that replicates the returns of 23 US oil companies — is up 46% in 2021.
What’s the outlook for oil? With rising demand, investors are feeling optimistic:
- Options traders are betting oil prices will rise by over 40% to $100 a barrel over the next 2 years — which hasn’t happened since 2014.
- According to a report by Standard Chartered, oil demand might accelerate the quickest in June and July.
What could derail an oil run? Rising supply. In 2020, oil producers reduced production to meet lower demand. Now they’re conservatively increasing production — at least until the demand is certain.
The world is moving towards clean energy but until then, it looks like oil will still be fueling our post-COVID travel plans.
Also: Bull case for oil prices.
