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Oil prices have risen above even the most bullish analyst forecasts so far this year.
Paul Ratje
Oil prices have risen above even the most bullish analyst forecasts so far this year. And now analysts are walking those forecasts, meaning the run is far from over. In fact, some see an opportunity for oil to hit $ 100 a barrel again, a milestone that was impossible just two years ago.
The Bank of America now sees oil spewing more than $ 100 per barrel from time to time over the next five years, although the bank ‘s average projected price is still much lower than that. . By 2021, the bank expects Brent crude to average $ 60 per barrel, and rise temporarily to $ 70 in the second quarter. As of Thursday, Brent was trading at $ 66.76 a barrel, down 0.4% on the day.
The number of call options promising to eclipse $ 100 per barrel by December 2022 has almost surpassed last week, according to Bloomberg.
By 2014, oil would often trade above $ 100 a barrel as demand in China fired higher producers and the global sometimes struggled to keep up. But by the end of that year, it had become clear that U.S. coal miners were pumping millions of new daily barrels into the market. Oil prices fell steadily from 2014 to 2016 and have not fully recovered since. The success of a water outage, or outage, assured some analysts that oil prices were brought down below $ 100 a barrel, as supply was no longer limited.
Sentiment changes slowly at that point. It is now unbelievable that oil could climb back to three numbers. Bank of America analyst Francisco Blanch believes there are a number of factors at play here. Better vaccinations and mitigation strategies should cause Covid-19 to become a much smaller factor; fiscal stimulus is helping global demand; China’s economy is strong and China is the world’s largest crude import; OPEC and its allies (known as OPEC +) have adhered to their production cut plan and even reduced supply more than analysts expected; and surprisingly strong winter storms in Texas can reduce supply by an additional 50 million barrels. Analysts have also divided the speed of energy transfer to renewable sources. While some industry experts believe there has already been oil demand, others do not expect a peak for a decade or more.
All said, Blanch expects demand to rise to 96.4 million barrels per day this year from 91 million in 2020. And supply should rise to 95.9 million barrels from 94 million. By 2022, it sees both supply and demand in excess of 99 million barrels, almost returning to the levels they were at in 2019.
There are a few wildcards here that make it unlikely that oil could stay above $ 100 per barrel for a long time – or even keep above $ 80. The question mark for global production is whether OPEC + and the US keeps the line on production as oil prices rise. U.S. representatives have largely said they will not increase production this year, but it would be hard to imagine that they would all hold the line if oil prices exceed $ 80 per barrel. . If public commercial producers decide not to inject production, private producers will certainly.
In addition, OPEC has an incentive to keep prices afloat while the agency sees its market share in jeopardy from U.S. producers. OPEC has raised productivity many times in the last six years due to fears about market share.
Finally, Iran and the US can make another nuclear deal, and lift sanctions on oil from Iran. This additional supply is likely to reduce prices.
All that said, $ 100-a-barrel oil still seems like a major stretch. But oil stocks don’t have to be as high as rising. In fact, Thomas Lee of Fundstrat wrote on Wednesday that it is “urgent” for energy investors to show up. He believes that stocks in the industry are well below fair value, given the cash back. In particular, he sees a wide gap between oil prices and the performance of oil service stocks, as measured by the
VanEck Vectors ETF Oil Services
(OIH). At $ 60 oil, he thinks the ETF is worth 193% more than normal prices. At $ 80, it could rise 297%. “So you see, an upside-down monster,” he wrote.
Write to Avi Salzman at [email protected]