Graphic: Oil’s rising price poised to boost energy sector
Crude oil prices surged over the summer as OPEC curtailed production, followed by the outbreak in early October of the Israel-Hamas war, which sparked fears of greater military conflict throughout the region. While higher oil prices may prove challenging for overall equity performance, energy stocks appear poised to benefit if commodity prices resume their ascent.
Oil's surge and drop: Oil prices had risen following the eruption of violence in the Middle East, but have since fallen. West Texas Intermediate closed at $80.44 on Nov. 1 vs. $82.79 on Oct. 6, but will increase by more than 10% next year, according to U.S. Energy Information Administration forecasts. However, the EIA notes that its forecasts don't take into account impacts from recent geopolitical events. Natural gas prices were recently $3.44 per million BTU compared to $3.34 on Oct. 6.
Oil and natural gas prices
High correlation: The S&P Composite 1500 Energy index has been highly correlated with crude oil prices, measuring at 0.88 since the end of 1994 — the index's initial value date. The energy index's correlation to natural gas prices is 0.24.
S&P Composite 1500 Energy index vs. oil prices
Production cuts: OPEC, which accounts for 32% of worldwide oil production, cut production to 32.73 million barrels a day in the third quarter from 33.95 million in Q1. Non-OPEC countries, notably the U.S., have increased production. By year-end 2024, the EIA projects non-OPEC production will grow by 1.7% while OPEC will increase by 1.1%.
Liquids production and consumption*
| Non-OPEC production | OPEC production | Total production | Worldwide consumption | |
|---|---|---|---|---|
| Q1 2023 | 67.08 | 33.95 | 101.0 | 99.8 |
| Q2 2023 | 67.61 | 33.69 | 101.3 | 100.8 |
| Q3 2023 | 68.44 | 32.73 | 101.2 | 101.4 |
| Q4 2023F | 68.7 | 32.86 | 101.6 | 101.6 |
| Q1 2024F | 68.39 | 33.14 | 101.5 | 101.8 |
| Q2 2024F | 68.76 | 33.18 | 101.9 | 101.9 |
| Q3 2024F | 69.24 | 33.33 | 102.6 | 102.6 |
| Q4 2024F | 69.62 | 33.10 | 102.7 | 102.7 |
*Millions of barrels per day. Includes crude oil, natural gas liquids, biofuels and other liquids. Sources: Bloomberg, U.S. Energy Information Administration