Oil price reviews began with caution: some banks saw Brent oil averaging $ 65 a barrel this year, and others, of a more daring nature, predicted that the oil benchmark could rise to $ 65 a barrel. Just a few months ago, these predictions seemed very optimistic for the environment, given the slow implementation of Covid-19 vaccines, the continued over-supply of oil and reports of coronavirus variants emerging in different parts of the world, threatening new waves of infection .
Now banks and brokers are talking about Brent at $ 100 a barrel. Of course, a big reason for this is the drop in US oil production caused by the Texas freeze earlier this month. It was even greater than the decline in production caused by last year’s pandemic, and it will take a while to recover – if it ever does.
However, demand has also been recovering steadily in some important markets, mainly in China. This recovery largely offset the slow demand for oil returns from other major consumers, such as the United States, and helped drive prices up.
Then, of course, there was a government stimulus spilled on economies around the world in response to the crisis. Trillions of dollars have been invested in businesses and families in the hope that this will help put GDP back on the growth path sooner or later. Once again, the United States was crucial to changing oil sentiment: revisions to oil price forecasts quickly followed President Joe Biden’s proposal for a $ 1.9 trillion stimulus package.
The package is still under debate and may end up smaller than originally proposed. But when it comes to oil, it did its job. Banks, the Fed and the Treasury Department expect a rapid economic recovery from this stimulus, and a rapid recovery will invariably include a recovery in demand for oil as people start to travel further.
Related: Bank Of America expects faster oil price rise in 30 years
Meanwhile, global oil stocks are declining, although not all reasons are clear. THE Wall Street Journal recently wrote a analyze of so-called lost barrels, or barrels of oil that somehow escape the radar of stock trackers and which last year reached a record 68% of an estimated global inventory increase of 1.39 billion barrels. Outside the mystery of the lost barrels, OPEC +’s efforts to cut production have been fruitful, and the US shale producers, this time, have been cautious about returning to growth mode, mainly because of oil prices.
In this context, it is not surprising that earlier this week Bank of America, Punch Trading, and Energy Aspects everyone said that Brent could rise to $ 100 in the next two years. According to Socar Trading – Azerbaijan’s oil marketing company – prices are rising on the basis of rebalancing and, in the summer, Brent could reach $ 80 a barrel. As the supply remains tight, it could rise further to $ 100 a barrel, said the company’s commercial director, Hayal Ahmadzada said Bloomberg.
Energy aspects Amrita Sen, on the other hand, cited the economic stimulus as the main reason for the expected high prices.
“It is a futures market, we always discount things that are going to happen in the future, now. That’s why prices are rising now, ”said Sen, speaking at Bloomberg Surveillance. “We always asked for $ 80 more oil in 2022. Maybe it’s $ 100 now, given the amount of liquidity in the system. I would not rule that out, ”she added. Related: Natural gas production fell 45% during the Texas freeze
Of course, expectations of a recovery in demand have not yet materialized outside of China, and there is the issue of additional barrels arriving soon from Saudi Arabia, perhaps from Russia and probably from Iran. With US production still depressed, this may not affect prices immediately. But a few million more barrels a day will certainly exert some pressure.
Then there is the latest from OPEC: the cartel is set to discuss a group increase in production, in addition to Saudi Arabia removing its voluntary cut of 1 million bpd in March. The increase, however, will be modest, if agreed, at 500,000 bpd. This is the same amount of production that OPEC + resumed operations in January, reducing its overall cut by 7.2 million bpd, excluding the additional unilateral cut from Saudi Arabia.
This means that in April, the group may be pumping 1.5 million bpd more than it is pumping now, and that doesn’t include the possible Returns of Iranian barrels to the market. This may interfere with immediate price expectations, but in the next year, the effects of underinvestment in new production will become more obvious, causing prices to rise.
By Irina Slav for Oilprice.com
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