How far can oil really go?

Oil price revisions started cautiously: some banks saw Brent at $ 65 a barrel on average this year, and more daring others predicted the benchmark oil could climb to $ 65 the barrel. Just a few months ago, these forecasts seemed quite optimistic for the environment, given the slow roll-out of Covid-19 vaccines, the continued oversupply of oil, and reports of coronavirus variants emerging in different parts of the world, threatening new waves of infection. .

Now banks and traders are talking about Brent at $ 100 a barrel. Of course, one of the main reasons for this is the drop in US oil production caused by the Texas Freeze earlier this month. She was even larger than the drop in production caused by the pandemic last year, and it will take some time to recover – if ever she does make a full recovery.

Yet demand has also recovered steadily in some key markets, notably China. This recovery more than offset demand for low-yielding oil from other major consumers such as the United States and helped push prices up.

Then, of course, government stimulus was pumped into economies around the world in response to the crisis. Billions of dollars have been invested in businesses and households in the hope that this will help get GDP back on track for growth as soon as possible. Once again, the United States has played a pivotal role in shifting oil sentiment: Revisions to oil price forecasts quickly followed President Joe Biden’s proposal for a $ 1.9 trillion stimulus package. dollars.

The package is still under debate and it could end up being smaller than what was originally proposed. But when it comes to oil, he did his job. Banks, the Fed, and the Treasury Department all expect a rapid economic recovery from this stimulus, and a rapid recovery will invariably include a rebound in demand for oil as people begin to travel more.

Related: Bank of America Expects Fastest Oil Price Rise in 30 Years

Meanwhile, global oil stocks are dropping, although all the reasons are not clear. The the Wall Street newspaper recently wrote a Analysis so-called missing barrels, or barrels of oil somehow slipping under the radar of inventory trackers and reaching a record 68% increase in global stocks last year estimated at 1.39 billion barrels. Apart from the mystery of the missing barrels, OPEC + ‘s efforts in reducing production have been fruitful, and American shale producers have this time been cautious to return to a growth mode, in particular because of the prices of oil. oil.

In this context, it is not at all surprising that at the beginning of the week, Bank of America, Socar Trading, and Energy aspects all said Brent could rise to $ 100 over the next two years. According to Socar Trading, the Azerbaijani oil marketing company, prices are up on rebalancing fundamentals, and by the summer, Brent could hit $ 80 a barrel. With tight supply remaining, it could climb further to $ 100 a barrel, the company’s commercial director Hayal Ahmadzada said. Told Bloomberg.

Energy aspects Amrita Sen, for her part, cited the economic recovery as the main reason for the expected price recovery.

“It’s a futures market, we always update things that are going to happen in the future, now. That’s why prices are up right now, ”Sen said, speaking on Bloomberg Watch. “We’ve always claimed $ 80 plus oil in 2022. Maybe it’s $ 100 now, given how much cash is in the system. I wouldn’t rule that out, ”she added. Related: Natural Gas Production Plummeted 45% During Texas Freeze

Of course, expectations of a rebound in demand have yet to materialize outside of China, and then there is the issue of additional barrels coming soon from Saudi Arabia, possibly Russia, and possibly Iran. . With US production still depressed, this might not affect prices right away. But a few million more barrels a day will certainly exert some pressure.

Then there is the last of OPEC: the cartel is ready to chat an increase in the group’s production in addition to Saudi Arabia removing its voluntary reduction of 1 million bpd in March. The increase, however, will be modest, if accepted, to 500,000 bpd. This is the same volume of production that OPEC + brought back online in January, reducing its overall reduction by 7.2 million bpd, excluding Saudi Arabia’s further unilateral reduction.

This means that in April the group could pump 1.5 million bpd more than it is currently pumping, and that does not include the possible return of Iranian barrels on the market. This may interfere with immediate price expectations, but by next year the effects of underinvestment in new production will become more evident, pushing prices up.

By Irina Slav for OilUSD

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