WTI settled Friday within 53c of $60/Bbl, its highest mark since January 2020. Cal 2022 is now above $52/Bbl, a level the front of the oil curve held only two weeks ago. Oil's rise over the past few weeks comes after the announcement of Saudi production cuts, which we believe contributed about $6 of WTI's appreciation. If you believe in an efficient oil market curve, a curve that reflects all known news, then the backwardation from near $60 in the front to $52 in Cal 2022 is consistent with Saudi Arabia ending the cuts this year. This makes sense as most see the extra Saudi cuts as temporary.
We believe the market has priced in many bullish factors that have landed WTI just shy of $60/Bbl and find it difficult to advise on waiting for even higher prices before de-risking a producer's portfolio. There are scenarios where oil prices could continue to move higher, and some excellent analysts hold this view. Many of those bullish positions hinge on how quickly and when demand returns for many Western countries. We are uncertain on this timeline as the return of demand has been generally flat across developed nations for many months now. AEGIS recommends swap structures for the balance of 2021 and either swaps in 2022 when budget certainty is paramount, or collars to capture more upside. At these price levels, it depends on the producer's individual needs and book.