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There has been a major dichotomy on Wall Street regarding the path of oil prices, with some seeing the massive rally in oil and gas as temporary and transient while the bulls said this rally still had a way to go.
Standard Chartered Global Research provided regular commodity updates and made waves in August when they said a Brent price of $ 65 / bbl or less was more likely than $ 75 / bbl or more. Stanchart said his bearish outlook was informed by the fact that “…a significant amount of money has already entered the market in the belief generated by Wall Street (error according to our analysis) that the balances are much tighter and justify 80-100 USD / bbl. “
More recently, Stanchart has maintained his bearish tone, claiming that the rise in oil prices is not fully justified, and that the fundamental argument for USD 80 / bbl is no stronger today than it was a few months ago.
Well, the energy bull market continued to defy all bearish expectations and forced Stanchart to make a 180 and join the bull camp.
In his latest product update, coming shortly after the October 4 OPEC + meeting, Stanchart analysts say:
“We think the market has concluded that OPEC + doesn’t see $ 80 a barrel (bbl) as a ceiling and is unlikely to cool prices in the short term. These factors lead us to change our view of prices; We are increasing our 2021 average Brent price forecast from $ 6 / bbl to $ 71 / bbl, and our 2022 forecast from $ 8 / bbl to $ 67 / bbl. We see the market as balanced at best over the next six months, even with a high estimate of 700 Mb / d of gas-to-oil substitution and no increase in OPEC + after December. Our view is broadly in line with that of the Energy Information Administration (EIA) and is more optimistic than that of the OPEC Secretariat, especially for the first quarter. Our own model and others imply that the extreme tightening is a market fear rather than a baseline; however, OPEC + has yet to respond to this fear. “
OPEC + laconic meeting
Stanchart’s sudden optimism was informed by the latest OPEC + meeting, a short and terse affair followed by a brief press release with no discussion of crude prices or the fallout from overheating gas markets. OPEC + has confirmed that it will stick to its July deal to increase production by 400,000 barrels per day (bpd) each month until at least April 2022 to phase out 5.8 million bpd of cuts. existing production.
Indeed, the ministers did not question the market discourse which assumes tight balances and an associated lack of reserve capacity, which means that prices will probably remain high for longer than expected. It also suggests that oil producers are prepared to defend a higher floor price than many previously thought.
But at what height?
The bulls received another boost after JP Morgan’s global markets strategy team stepped out and encouraged investors to buy on a downside despite the recent surge in energy prices, as the economy can support $ 150 worth of oil.
“For example, the economy and consumption were performing very well during the 2010-2015 period, when oil averaged $ 100. etc.) we think that even with oil at 130 or 150 dollars, the stock markets and the economy could work well (with some rebalancing during the capital turnover) ” JPM strategist Marko Kolanovic said.
JPM is not the only ultrabull.
Opportunistic LLP claims the US economy is heading towards pandemic-induced hyperinflation, arguing that what took five years to do with the latest QE has now been duplicated in less than a year. Analysts say that with such a rapid expansion of the money supply, it is only a question of when hyperinflation hits. Experts argue that given the government’s insatiable appetite for spending, the dollar could be subject to massive devaluation that propel WTI prices north of $ 180 / bbl by the end of 2022.
With OPEC + ready to defend rising oil prices and the Biden administration discouraging drilling in its country, it seems its only option to bring prices down is to start selling its strategic oil reserves.
By Alex Kimani for Oil Octobers
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