What’s going on?

• The oil price is expected to increase substantially sooner than Goldman Sachs thought.

What does that mean?

• Demand for oil has finally started rebounding from 2020, with price increasing by more than 20% this year. But Goldman thinks that it’s only the beginning: it will rise another 20% by Q3.
• Some reasons:
  • Demand will be back to pre-pandemic levels by late July, with the vaccine rollout;
  • Supply is reckoned to keep lagging, with oil producers showing no signs of significantly strengthening production in the next 2 quarters.

Why should I care?

For markets: Commodities are a good way to protect against inflation

• Between the mentioned economic recovery and improvement in government spending, investors are starting to feel more confident that the prices of the world’s goods and services will rise (i.e. inflation), and in return, the raw materials used to produce them.
• That’s why commodities are seen as a good “hedge” against inflation, which could drive oil’s price higher.

The bigger picture: Minimal impacts from the blackout in Texas

• The unprecedented cold snap in Texas (America’s biggest energy-producing State) has been moving the oil price lately too. The effects from decreasing supply and decreasing demand (with the Texan refineries closed) are reckoned to balance each other out, leaving a pretty small impact on the global oil market.

Content source: Finimize (2021) Full-Filled. Available at: https://www.finimize.com/wp/news/full-filled/ [Accessed on Mar 5, 2021]