This article was originally published on ETFTrends.com.
In January and February, oil notched its best two-month performance since 2016 when prices bounced in April and May following a precipitous plunge that sent prices below $27 per barrel, the Wall Street Journal reports. Robust demand, a critical factor with any commodity, is seen propping up oil prices.
“The world’s appetite for oil and gasoline is growing faster than many forecasters expected, putting Brent crude on pace to top $70 a barrel, Goldman Sachs says,” reports CNBC. “The investment bank says oil demand grew by 1.55 million barrels per day in January alone, a strong result despite a tough comparison with high consumption last year. For the first quarter, Goldman expects global oil demand to grow by nearly 2 million bpd, trouncing its earlier forecast for 1.1 million bpd and driven by consumption in emerging markets.”
Related: Top 34 Oil ETF List
The hard fought rebound this year has also come off a steep decline. Crude prices plunged 44% from a multi-year high in early October through the nadir on Christmas Eve as investors ditched energy in response to rising pessimism over global economic growth and potentially diminished demand across a range of commodities.
Demand Outlook for Oil
“The strong demand will likely push Brent crude, the international benchmark for oil prices, above $70 per barrel. The rally has already outstripped Goldman's prior view that Brent would peak at $67.50 in the second quarter,” according to CNBC.
The International Energy Agency projects consumption to increase each quarter of 2019 year-over-year, albeit at a slower-than-usual pace for the first quarter. Meanwhile, on the supply side, Saudi Arabia and other members of the Organization of Petroleum Exporting Countries have been cutting output. Additionally, U.S. sanctions on Iran and Venezuela have reduced further bets on international supplies.
Related: Can the Energy Sector Rally Again?
Predictably, China is again proving to be a major source of oil demand.
“In China, a key engine for oil demand, oil consumption grew by 340,000 bpd in January and February, according to Goldman. The Chinese also stocked away 360,000 bpd, a buildup that runs counter to seasonal trends, the bank says,” reports CNBC.
For more information on the energy sector, visit our energy category.
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