Oil reaping the benefits from economic optimism

The only way is up for the price of oil as the commodity’s recent resurgence shows no signs of slowing down. 

Brent crude oil was up at $64.62 on Wednesday, a gain of over 2% on the previous day’s close. 

West Texas Intermediate climbed to $61.11 during the same trading day, with slightly a more modest 1.77% increase. 

Both benchmark oils are following recent upward trends which have seen all-time highs. 

For the year-to-date Brent crude oil has seen a 23.1% increase from $51.09 per barrel, while the price of West Texas Intermediate has risen by 24.1% from $48.4. 

The commodity is benefiting from a number of favourable macroeconomic factors. 

As Texas froze over this month, there were pressures on both the demand and supply, causing oil prices to rise. 

While Joe Biden is yet to pass his $1.9trn stimulus package through Congress, the President of the US appears to be inches away, and markets have reacted accordingly. 

Covid-19 appears to be on the retreat in America, and across many parts of the world, causing hope of lockdowns coming to an end. 

In the UK, the FTSE 100 has benefited from strong performances from oil companies, in addition to mining firms, relying on both sectors for recent gains.

“Between them they provide a fifth of the index’s market capitalisation and are forecast to provide 31% of total profits and 28% of aggregate dividends in 2021,” according to Russ Mould, investment director at AJ Bell. 

However, Mould warned that things could quickly change as the recent performances of mining and oil companies is dependent on a favourable economic climate.

“The danger is that the global economy double-dips, as the virus refuses to go away, debt proves too onerous and corporate and consumer confidence slips away. Neither commodity prices nor mining and oil stocks are likely to thrive in such an environment.”