Oil price increase a sign the recovery is in sight

Having reached an all-time low in April 2020 due to worldwide lockdowns, oil has climbed back to its pre-pandemic level.

Brent crude oil was valued this morning at $60 per barrel for the first time since January 2020. 

The news is a continuation of the commodity’s resurgence throughout February. Since the final day of last month, the value of Brent crude oil has risen by around $5, a 10% jump. 

The price of oil is looked to as a barometer of activity as the world economy continues to cope with the ongoing coronavirus pandemic. 

After worldwide lockdowns first came into effect in early 2020, oil prices plummeted into negative territory. Producers who did not have adequate storage capacity, were paying buyers to take the commodity off their hands.

“The biggest driver for the latest surge in prices seen through last week was a sharp upturn in expectations for economic and oil demand recovery on signs that the coronavirus may finally be in retreat,” Vandana Hari, founder of Singapore-based oil markets data firm Vanda Insights told the BBC.

Other factors, including efforts to restrict supply by OPEC nations, especially Saudi Arabia, have helped the price of oil to rebound. 

Russ Mould, investment director at AJ Bell, views the news as a sign investors are now looking ahead to a recovery in demand. 

Mould added that it could unleash a new turn of events in the industry as big oil companies seek alternative business models. 

“This could help add fuel to M&A chatter in the industry after it emerged ExxonMobil and Chevron had held talks over a combination last year,” said Mould. 

“The last round of mega-mergers came a little over 20 years ago. However, this time round tie-ups could just double businesses’ problems given the need to transition away from the traditional oil and gas assets which dominate their portfolios as part of a global transition away from fossil fuels.”