Assistant Manager of Private Equity at PROVEN Management, Julian Morrison, has cautioned that oil prices will likely rise further over the next few months due to several factors now at play.

He was speaking on Taking Stock with Kalilah Reynolds recently against the background of oil prices recording their biggest weekly gains in a year recently, rising some 2% as energy firms began shutting U.S. production in the Gulf of Mexico ahead of Hurricane Ida.

Assistant Manager, Private Equity at PROVEN Management, Julian Morrison

Morrison said the impact of the hurricane in the US will likely contribute to a temporary surge in the rates. 

“We noticed that Hurricane Ida passed Jamaica and hit Louisiana and disrupted some activities as it relates to oil production plants and that will cause a temporary supply disruption and also cause some spike in energy prices. That might be more temporal and we might see some correction here but in terms of a trend we’re likely to see an up trend gradually in the next couple of quarters,” said Morrison

According to a Reuters report, Hurricane Ida shut about 80% of the Gulf of Mexico’s oil and gas output. Projections are that oil refineries in Louisiana could take weeks to restart, which will increase the demand for crude oil. Offshore facilities will also be challenged in offsetting the demand due to damage to key support facilities.

Meanwhile, Morrison said an uptick in air travel will also influence a jolt in oil prices as more airlines take advantage of the recovering air traffic.   

“Airline fleets consume copious amounts of energy and that is a supporting factor of higher energy prices,” he said.

He also reasoned that uncertainties with the pandemic and sustained tension in the middle east are also likely to influence an upward movement in oil prices over the medium term.

He said the emergence of new COVID-19 variants continue to threaten all industries including the oil and gas sector as they continue to keep a hold on economic activity than most would have originally anticipated.

In recent days, the World Health Organization added another mutation to its list of variants of interest, even as the world continues to evade others of concern. According to the WHO,  the Mu variant may partially evade the immunity people have developed from past infection or vaccination. It added the variant to its watchlist on August 30 after it was detected in nearly 40 countries and found to possess a cluster of mutations that may make it less susceptible to vaccines.

As for the activities in the middle east, Morrison pointed out that the evacuation of the US military from Afghanistan as well as greater geopolitical tension in that region could further propel oil prices.  

“Right now the outlook is a bit choppy, there’s a lot of uncertainty. On the face of it, many persons thought you would have seen a pull back in oil prices but the fact is the issues that are supporting higher oil prices outweigh the things that will cause a temperance in the oil price so in terms of the tug a war between the two issues, there’s likely to be an uptick in energy prices going forward,” he reiterated. 

Near the end of last week, one of the main global oil benchmarks, West Texas Intermediate, was selling for around US$70.00. Brent Crude was over US$73.00.

Catch THE ANALYSTS on Taking Stock with Kalilah Reynolds. New episodes premiere Tuesdays at 8pm on YouTube and kalilahreynolds.com

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