Oil price returns to pre-pandemic level as hedge funds turn bullish

The oil price has breached the US$60 mark for the first time since before the COVID-19 crisis hit, with hedge funds becoming more bullish on the future price due to limited opportunities to ramp up production.

The price of global benchmark Brent crude futures rose to $60.06 a barrel on Monday, just higher than the price set on February 20, 2020, days before the market started declining sharply as economies around the world locked down.

The subsequent collapse in demand and prices over 2020 had a huge impact on the financial performance of ‘big oil’, with ExxonMobil racking up a first annual loss of over $20 billion and BP reporting a full-year loss of $5.7 billion.

However, Brent crude has jumped 59% since early November when news of successful vaccines emerged, and prices will continue to rise as producers struggle to ramp up production, according to various hedge funds.

Oil companies are facing increasing pressure from environmental-focused investors to transition from fossil fuels to renewable energy, which could put a cap on attempts to ramp up production.

Maglan Capital co-founder David Tawil said: “By the summer, the vaccine should be widely provided and just in time for summer travel and I think things are going to go gangbusters.”

Tawil predicted prices of $70-80 a barrel for Brent by the end of 2021, while his New York-based event-driven fund is investing long independent oil and gas producers.