Right now, a very good business to be in is the oil extraction business.
Ever since the industrial revolution, oil has enjoyed pride of place as the world’s most important combustible commodity. It kept the wheels of industry turning at the time during which the modern world was being invented, and has remained the fuel of choice for keeping the modern world moving ever since.
There have been very few periods in modern history during which oil has struggled to maintain value, one of which was as recent as early 2020, when for the first time in history, the value of oil went to such a low point that oil suppliers had to actually pay buyers to take the barrels off them.
That’s right, negative equity.
Suddenly, however, that unique market position went full circle and within a very short time, crude oil was appreciating rapidly in value once again.
Throughout 2021, oil values were watched closely by the most seasoned analysts in the financial markets business, and as it soared past $50 per barrel, investment banks in Wall Street began to make claims that it would get to $80 by the last quarter of 2021, a figure which seemed outrageous at the time.
Here we are, just a few months later, and Brent Crude is trading at around the $111 mark, with US Brent Crude Oil Futures at approximately $108.
This morning, as the markets open across the world and the trading week begins, oil has jumped in price once again, rising considerably over its value at close of business on Friday last week, and these lofty figures are now clear to see on all charts.
The first session of the day, that being the Asian trading session, was very interesting in that crude oil futures rose by 3%.
At the end of last week, the International Energy Agency (IEA) publicly called for new emergency measures aimed at reducing oil usage.
Demand for the black stuff is higher than ever, and has been ever since the middle of 2021, as the Asian continent and North America had been importing record amounts of oil.
Goldman Sachs analysts have recently stated that during 2021, Russia supplied 11% of global oil consumption and 17% of global gas consumption, and as much as 40% of Western European gas consumption in the same period, therefore the sudden withdrawal from use of these commodities supplied by Russian energy companies has contributed to an extreme deficit between supply and demand.
As is quite normal during periods in which the supply of oil is far lower than the demand, oil companies in other OPEC nations are also making hey whilst the sun shines.
Aramco, Saudi Arabia’s giant oil company has been increasing its profits massively as a result of the overall 67% increase in oil prices on a year-on-year basis.
Aramco reported an astonishing 124% net income increase for 2021 during its full-year earnings report yesterday, and is anticipating an even higher growth for this year.
Despite the current trend among Western markets toward ‘renewable energy’, the oil industry sees absolutely no end to their dominance in the next few years, with Aramco having said that it would invest to increase crude oil production capacity to 13 million barrels per day by 2027.
Given that there are as many cars on the road today as there were this time last year, it appears that the necessity of oil-derived fuels as a retail product such as petroleum and diesel oil, is still being consumed across the world at the same rate as before this incredible surge in value that has caused the price of petroleum products at fuel stations to soar.
These levels of volatility in the oil market prove that oil is still king of the energy commodities, and that people and businesses are still prepared to pay for it. Therefore, the supply factor remains the driver of value, rather than the inevitable demand.