Oil price revisions started cautiously: some banks saw Brent crude averaging $65 a barrel this year, and others, of a bolder nature, predicted that the oil benchmark could climb to $65 a barrel. Just a couple of months ago, these forecasts sounded pretty optimistic for the environment, given the slow rollout of Covid-19 vaccines, the continuing excess supply of oil, and reports of coronavirus variants emerging in different parts of the world, threatening new infection waves.
Now, banks and traders are talking about Brent at $100 a barrel. Of course, a big reason for this is the slump in U.S. oil production caused by the Texas Freeze earlier this month. It was even greater than the production decline prompted by the pandemic last year, and it will take a while to recover—if it ever does fully.
Yet demand has also been recovering steadily in some key markets, most notably in China. This recovery has largely offset slow-to-return demand for oil in other large consumers such as the United States and helped push prices higher.
Then, of course, there has been government stimulus poured into economies around the world in response to the crisis. Trillions of dollars have sunk into businesses and households in hopes this will help set GDP back on the growth path sooner rather than later. Once again, the U.S. has been crucial for the change in oil sentiment: oil price forecast revisions were quick to follow President Joe Biden’s proposal of a $1.9-trillion stimulus package.
The package is still being debated, and it might end up smaller than originally proposed. But when it comes to oil, it has done its job. Banks, the Fed, and the Treasury Department all expect a swift economic recovery due to this stimulus, and a swift recovery will invariably include a rebound in oil demand as people start traveling more.
Meanwhile, global oil stocks are on the decline, even if not all the reasons for that are clear. The Wall Street Journal recently wrote an analysis of the so-called missing barrels, or barrels of oil that somehow slip under the radar of inventory trackers and that last year reached a record high of 68 percent of an estimate global inventory increase totaling 1.39 billion barrels. Outside the mystery of the missing barrels, OPEC+ efforts in production cutting have been fruitful, and U.S. shale producers have this time round been cautious about returning to a growth mode, not least because of oil prices.
In this context, it is not at all surprising that earlier this week that Bank of America, Socar Trading, and Energy Aspects all said Brent could rise to $100 over the next two years. According to Socar Trading—Azerbaijan’s oil marketing company—prices are up on the rebalancing fundamentals, and by the summer, Brent could hit $80 a barrel. As supply remains tight, it could climb further to $100 a barrel, the company’s chief trading officer Hayal Ahmadzada told Bloomberg.
Energy Aspects Amrita Sen, on the other hand, cited economic stimulus as chief reason for…
Read More: How High Can Oil Really Go? | OilPrice.com