Oil at $ 100: the market is promised a new “super cycle”


Two of Wall Street’s largest investment banks are JPMorgan Chase & Co. and Goldman Sachs – predict a new “super cycle” in the oil market, expecting oil prices to rise as the coronavirus pandemic subsides.

Forecasts reach the point that the price of Brent will return to $ 100 per barrel for the first time since 2014, writes the Financial Times.

Bullish forecasts (suggesting higher prices, stock term – ed.) Are based on the expectation that fiscal stimulus will increase demand for oil, in the absence of new projects in the field of production due to sharp cuts in capex by oil companies in recent years.

This imbalance between supply and demand contributes to long-term price increases and creates preconditions for the formation of a “super cycle” in the market.

Thus, experts await a complete transformation of the oil market, which was severely affected last year by the COVID-19 pandemic, which contributed to a sharp drop in oil demand, as well as a spread of the opinion that the rapid development of the electric vehicle market will weaken demand.

“We will face oil shortages before the time comes when we don’t need it,” said Christian Malek, oil and gas executive at JPMorgan, during a conference call with clients last week.

“We may see oil prices rise to $ 100 a barrel or even higher.”

April Brent oil futures traded at $ 63.27 a barrel on Tuesday. Over the past three months, their value has risen by 42% due to optimism about the introduction of vaccines against COVID-19, as well as the limitation of production under OPEC +.

Geoffrey Curry, a commodities analyst at Goldman Sachs, who predicted the previous commodity supercycle in 2003-2004, told the FT that he sees a real risk of oil prices rising to $ 80 a barrel “or even higher” this year.

His forecast is not based on an increase in demand from China, but on the expected growth in global consumption thanks to government programs to support the economy, including a $ 1.9 trillion stimulus package proposed by US President Joe Biden.

“Measures to support people with middle or low income create the preconditions for substantial consumption,” says Curry. “These people don’t drive Tesla, they drive SUVs.”

The demand for fuel-efficient SUVs has remained strong in the US in recent years due to the low cost of gasoline.

Another well-known analyst in the oil industry, Arjun Murti, who previously worked with Curry at Goldman Sachs, believes that it is premature to talk about a “supercycle” in the oil market, but one can imagine scenarios in which oil prices will rise significantly.

“There are still many obstacles to the market recovery, but this will depend on the volume of oil demand,” said Murthy, a senior advisor to Warburg Pincus and a member of the ConocoPhillips board of directors.

Global oil demand before the COVID-19 pandemic was about 100 million bpd, and last year fell to about 90 million bpd, and analysts do not expect it to recover to pre-crisis levels earlier than 2022, when the massive introduction of vaccines from coronavirus and, accordingly, the recovery of air traffic.

According to Murti, if the growth rate of oil demand in the coming years will be about 500 thousand bpd, this will not be enough to create a deficit in the market.

However, an increase in demand by 1.2-1.4 million bpd, which was noted after the fall of the oil market in 2014-2015, could provoke a “supercycle”, he said.

The increase in oil production is the main factor limiting the bullish outlook.

“In the short term, we shouldn’t expect an oil shortage, given that a number of countries, such as the UAE, are planning to increase production capacity,” said Patrick Gibson, in charge of the oil sector at Wood Mackenzie.

Another veteran of the industry, Pierre Andurand, who made a name for himself during the last “super cycle” in the oil market, betting heavily on the rise in prices, this time more cautious. “The direction of the oil market is largely in the hands of OPEC and will depend on how much oil the organizations are willing to return to the market,” he said in an interview with FT.

“I am sure that in 2021 and in subsequent years, oil prices will go up, but I see many elements that can cancel this growth,” he said, noting, in particular, the possibility of a return to the Iranian oil market, as well as the risk that COVID-19 vaccines will not work for other strains of coronavirus.

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