Oil prices have lost nearly 7% this month, but investors should be aware that a spike from last week’s levels to more than $120 is possible this year.
“This is a tight market. Supply and demand are close,” says Matt Badiali, senior research analyst at Banyan Hill. Global oil demand is expected to average 99.1 million barrels a day this year, but global oil supply stood at 98.8 million barrels a day in June, according to the International Energy Agency.
“We have supply constraints, thanks to Venezuela becoming a failed state. We have potential supply disruption with the Iran sanctions, and we have demand increasing with global growth,” Badiali says.
“Disappointment that [the Organization of the Petroleum Exporting Countries] didn’t just open the spigots” on production also supports a higher oil price.
OPEC, along with nonmember allies including Russia, reached an agreement last month to curtail some of its production cuts, essentially increasing output by one million barrels a day. In part, the move was meant to offset supply losses tied to economic woes in Venezuela, disruptions in Libya, and renewed U.S. sanctions on Iran.