Investors shift focus from weak demand to supply risks as oil prices reach a one-month high at US$71 per barrel
Oil prices saw a rally on Wednesday as markets shifted focus from weak demand to potential supply disruptions.
Bloomberg News reported that prices hit a one-month high after Israel announced plans to retaliate against Iran following the launch of around 200 ballistic missiles.
This development increased concerns over crude oil supplies in the region, with West Texas Intermediate (WTI) prices rising by about 2 percent to reach US$71 per barrel.
Randy Ollenberger, managing director of Oil and Gas Equity Research at BMO Capital Markets, commented on the situation during an interview with BNN Bloomberg.
He emphasized the ongoing instability in the Middle East, saying, “It is a reminder that the world, particularly the Middle East, is still very unstable and we have to think about the possibility of supply disruption.”
Ollenberger noted that prior to these tensions, the market had been focused on weak demand. However, recent events have introduced concerns about potential supply shortages.
He explained that the rally in oil prices could continue if supply disruptions occur or if there is clear evidence of improving demand. He also highlighted that oil prices could rise “materially higher” if there were actual or perceived threats to supply.
On the demand side, Ollenberger pointed to the possibility that fiscal stimulus in China and interest rate cuts by the US Federal Reserve could stimulate demand in both countries.
“If the fiscal stimulus that they’ve recently put into place starts to work, we could see higher demand,” he said, noting that weak Chinese manufacturing and industrial demand have particularly impacted the diesel market.
Ollenberger added that stronger demand in these sectors could push oil prices higher. He also noted that investors had recently focused on more defensive energy companies, but this focus might be shifting.
“I think now what you’re seeing is those investors rethinking that and increasing exposure to some of the stocks that might have a little bit more torque to the upside if oil prices were to continue to rally,” he explained.
