Oil price revisions began cautiously: some banks saw Brent crude averaging $ 65 a barrel this year, and others more boldly predicted that the oil benchmark could rise to $ 65 a barrel. Just a few months ago, these forecasts seemed quite optimistic for the environment, given the slow launch of Covid-19 vaccines, the continued supply of excess oil and reports of coronavirus variants appearing in different parts of the world, threatening new waves. of infection. .
Now, banks and retailers are talking about Brent at $ 100 a barrel. Of course, an important reason for this is the decline in US oil production caused by the Texas frost earlier this month. It was even bigger than the decline in production caused by the pandemic last year and it will take some time to recover – if it ever happens completely.
However, demand has steadily recovered in some key markets, especially in China. This recovery largely offset the slow demand for oil returns to other large consumers, such as the United States, and contributed to higher prices.
Then, of course, there was a government stimulus pouring into economies around the world in response to the crisis. Trillions of dollars have sunk into businesses and households in the hope that this will help put GDP back on track sooner rather than later. Once again, the United States has been instrumental in changing oil sentiment: revisions to oil price forecasts have been swift to follow President Joe Biden’s $ 1.9 trillion stimulus package proposal.
The package is still under debate and may be smaller than originally proposed. But when it comes to oil, he’s done 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 recovery in oil demand as people begin to travel more.
Related to: Bank of America expects oil price to rise rapidly in 30 years
Meanwhile, global oil stocks are declining, although not all reasons are clear. Wall Street Journal recently wrote a analyze of the so-called missing barrels or oil barrels that somehow slip under the radar of inventory tracking instruments and which last year reached a record level of 68 percent of the estimated global stock growth totaling 1.39 billion barrels. Apart from the mystery of missing barrels, OPEC + ‘s efforts to reduce production have been fruitful, and US shale producers have been cautious this time about returning to a growth path, not least because of oil prices.
In this context, it is not at all surprising that earlier this week Bank of America, Socar Trading, and Energy issues all said Brent could rise to $ 100 in the next two years. According to Socar Trading – the oil trading company in Azerbaijan – prices are rising against the fundamentals of rebalancing, and by summer, Brent could reach $ 80 a barrel. As supplies remain tight, it could rise to more than $ 100 a barrel, the company’s chief commercial officer Hayal Ahmadzada said Bloomberg.
Energy issues Amrita Sen, on the other hand, cited the economic stimulus as the main reason for the expected rally.
“It is a futures market, we always reduce the things that will happen in the future, now. That’s why prices are rising now, “Sen told Bloomberg Surveillance.” I’ve always asked for $ 80 plus oil in 2022. Maybe it’s $ 100 now, given how much liquidity there is in the system. I wouldn’t rule out that, ”she added. Related to this: Natural gas production fell by 45% during the Texas frost
Of course, expectations of a return to demand have not yet materialized outside of China, and then there is the question of additional barrels that will soon come from Saudi Arabia, perhaps from Russia and probably from Iran. As US production is still depressed, they may not affect prices immediately. But a few million extra barrels a day will certainly put some pressure.
Then there are the latest ones from OPEC: the cartel is set to discuss an increase in the group in production, in addition to Saudi Arabia, eliminating from March the voluntary reduction of 1 million bpd. However, the increase will be modest, if agreed, to 500,000 bpd. This is the same amount of OPEC + production brought back online in January, reducing its overall reduction by 7.2 million bpd, excluding the further unilateral reduction of Saudi Arabia.
This means that in April the group could pump 1.5 million bpd more than it is pumping now and this 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 apparent, stimulating higher prices.
By Irina Slav for Oilprice.com
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