Shares in Royal Dutch Shell (RDSB) have hit their highest level since March 2020 after a strong run in the oil price which has doubled in the past 12 months.

Brent Crude jumped 1.2% to $79.03 in early trading on Monday 27 September, putting the oil price close to levels not seen since October 2018.

Oil prices have been rallying amid concerns about supply as inventories are drawn down. A spike in gas prices has also put more demand on oil as an alternative power source.

The US Energy Information Administration will publish the latest weekly data on US oil stockpiles on 29 September and the figures will be watched closely by the market.

As the US economy has emerged from lockdown and started to grow, demand for energy has gone up. As a result, the US stockpile of oil has shrunk to just under 424 million barrels, excluding the strategic reserve. That means US oil inventories are down 16% year-on-year and down 23% from their June 2020 pandemic-driven, all-time peak.

Importantly, supply is not growing much, even as demand recovers. The number of active US oil rigs is now 503, double what it was a year ago but that it still only half the 2018 peak and barely a quarter of the 2014 level when shale production was roaring higher.

Oil producers’ cartel OPEC and its allies seem keen to increase their output only very gradually. The planned increase of 400,000 barrels a day per month from OPEC+ will add about 2 million barrels to supply, or 2% of global supply.

‘Many investors, including big asset managers, will be kicking themselves that they shunned shares in oil companies as part of a global shift towards more ESG-friendly companies,’ says Russ Mould, investment director at AJ Bell.

‘Despite the transition to renewable energy around the world, it is clear oil is still needed in today’s world.’

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Issue Date: 27 Sep 2021