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Brent Brut and WTI Gross Crude prices reached their highest level in five months this week, as the market tightens and clashes occur between the unfortunate producer of OPEC, Libya.
Brent crude exceeded $ 71 and WTI crude exceeded $ 64 per barrel in the middle of this week, with the supply cut off fears of slowing economic growth.
Following the crash of Q4 2018, oil prices have already risen by more than 30% since the beginning of the year.
But oil could still flow and Brent could reach $ 80 a barrel this summer, due to geopolitical problems, cuts imposed by OPEC and its allies, resilient demand and hedge funds. in the shelter of hedge funds, which suggests that bulls have room. to add bullish positions in futures and options on crude oil, according to a research note from RBC Capital Markets, quoted by CNBC.
RBC strategists have significantly raised their oil price forecasts for Brent and WTI average prices this year. Brent Crude is currently trading on average at $ 75 per barrel in 2019, up from $ 69.50 previously, while WTI is expected to average $ 67 per barrel throughout the year versus $ 61.30 per barrel. in the previous estimate of RBC.
According to RBC experts, Brent could even reach $ 80 this summer.
This is a threshold that oil-consuming countries such as India consider too high and that analysts see as the beginning of the destruction of demand.
"We are seeing an asymmetric asymmetry in price risk, driven by geopolitical rallies that could drive prices up to a level comparable to our high-end scenario, and test the $ 80 / barrel barrier for intermittent periods this summer." RBC's RBC report notes written by strategists Michael Tran, Helima Croft and Christopher Louney. Related: Permian production rises for oil rally
However, not all analysts believe that Brent has upside potential of $ 10 per barrel compared to current levels. Goldman Sachs, for example, estimates that the rally has almost run its course and that it is unlikely that the Brent will reach 80 dollars. Goldman has raised its average price of Brent for the second quarter from 72 USD to 72.50 USD per barrel, but expects an increase in shale production and the pressure exerted by OPEC to cancel some of the cuts made in the second semester.
But RBC warns that we could see 80 Brent this summer, thanks to oil rallies motivated by geopolitics.
Several geopolitical factors over the next few months could cause oil prices to rise relative to the current price of Brent ($ 71).
First, the United States is expected to announce in a few weeks whether it would extend the exemptions granted to certain Iranian oil buyers to continue buying oil from Tehran. Analysts believe largely that the "zero exporter of Iranian oil" will not occur in early May, expiry date of the current waivers, because the Administration would be more flexible, again, at least to some buyers, so as not to influence the prices of oil (and gasoline). too high.
Then there is the problem of toughening US sanctions against Venezuela due to the collapse of oil production in this Latin American country, which has been undermined by sanctions and power cuts Massive and plunged from 289,000 b / d to less than 1 million bpd – to 732,000 bpd in March, according to OPEC secondary sources.
In addition to these geopolitical concerns, one of the craziest maps of OPEC in recent years, Libya, is again plunged into turmoil after the strong general Khalifa Haftar and his so-called Libyan National Army (LNA ) advance westward on the Libyan capital Tripoli and clash. UN-backed government troops in a new confrontation that could escalate and threaten to disrupt Libya's oil production and export once again.
Apart from geopolitical outbreaks that could suddenly tighten supply more than desired OPEC cuts, the positioning of portfolio managers on oil futures suggests that oil still has room for improvement , according to RBC. Related: BP withdraws from Chinese shale deposit
"In summary, there is still room to lose potential as geopolitical hot spots are still a clear and present danger for the market, but many wounded bulls remain after the T4'18 washout," RBC analysts note. .
The ratio between bullish and bearish bets peaked at 13: 1 in the fall of 2018 and averaged 8.5: 1 throughout last year, according to RBC.
In the week to April 2, the ratio of short long positions in Brent and WTI rose from 5.60 to 6.50 the previous week, according to the exchange rate data compiled by John Kemp, market analyst at Reuters. As a comparison, this ratio was 15.00: 1 last year to mid-April, while it stood at 13.88: 1 at the end of September, before the Price collapse in Q4.
In addition to other factors that have had a positive impact on oil prices, demand remains strong, particularly in China, according to RBC and Goldman Sachs. However, RBC warns that the disproportionate influence of China and India on global oil demand growth could pose a downside risk to oil prices in the event of a significant slowdown in economic growth.
By Tsvetana Paraskova for Oilprice.com
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