Crude oil prices continue to trade well above US$80 per barrel as oil production continues to lag behind pre-pandemic levels.

Unlike demand, which has bounced to those levels.

US domestic oil production – powered largely by the unconventional shale fields – has bounced back to 11.3 million barrels per day (MMbbl/d) after dropping to a low of 9.7MMbbl/d in May 2020.

This is still some ways off from the production of 12.8MMbbl/d in January 2020 and along with OPEC+ still enforcing its production cuts, means that production is trailing behind demand, which is currently above 21.8MMbbl/d in the US – the level it was at before COVID-19.

There may be some relief in sight, or at least activity that will keep crude oil prices from rising too high.

While US rig activity is still trailing the nearly 700 rigs that were operating in January 2020, the number has risen steadily from less than 200 in the summer of 2020 to the current 445 operating rigs.

However, even increased US and OPEC+ production is unlikely to put downward pressure on crude oil prices with Reuters noting that steep price declines are typically associated with formal recessions or mid-cycle slowdowns.

The news agency added there have been no instances in recent decades in which oil prices have spontaneously declined when supply caught up with demand without some form of economic slowdown.

Should the global economy continue expanding during 2022 and 2023, this is likely to cause crude oil prices and inflation to keep climbing.

Uranium outlook still positive

Oil isn’t the only energy commodity that’s staying strong.

The outlook for uranium is also positive with Canadian uranium giant Cameco saying that long-term prices had increased by 28%.

It noted that spot prices had climbed by 46% since the end of June due to “the thinning of uncommitted primary supply as unexpected demand from junior uranium companies and financials has led to increased liquidity and better price discovery”.

This had resulted in increased interest by utilities in on-market contract activity as their focus shifted to securing material for their uncovered requirements.

At least two funds, the Sprott Physical Uranium Trust and ANU Energy OEIC, have been snapping up physical uranium on the spot market, which has kept the nuclear fire burning.

Coal tumbles

Meanwhile, the bottom has fallen out of coal prices after China’s National Development and Reform Commission said there was more room to adjust coal prices after its recent investigations into producers had found that production costs were significantly lower than current spot coal prices.

The most-traded thermal coal futures contract on the Zhengzhou Commodity Exchange closed down 8.6% on Friday before falling another 7.7% in the night session to US$147 per tonne, its lowest level since 10 September.

Adding further pressure, the NRDC noted that Chinese coal inventories had rebounded by 25 million tonnes from its end-September level to more than 100 million tonnes.

Rail and port loadings also indicate that further gains are likely.