Oil prices could spike to $100, analysts reckon

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Oil prices will spike in the coming months, analysts at big investment banks Goldman Sachs and Band of Americal Merrill Lynch are predicting, as recovering economies increase demand but supply is constrained.

Brent crude futures, which started the session at under $65 per barrel, will hit US$70 in the second quarter of 2021 and then rise to US$75 by the summer, Goldman’s commodities team forecast.

Oil could also hit US$100 in the coming years, analysts at Bank of American Merrill Lynch (BAML) forecast.

“The biggest short-term risk to oil prices may come from a new Iran nuclear deal, as a new arrangement could bring 2mln barrels per day into the market in short order,” the BAML team said

“Yet, three major factors should continue to support the energy price recovery: (1) improving micro oil supply/demand fundamentals, (2) an unprecedented global fiscal and monetary stimulus, and (3) a stronger external position in |hina, the world’s largest commodity importer.”

What this means for oil prices in the medium term, the BAML team reckons, is that despite the turbulence, Brent will average US$50 to $70 per barrel out to 2026, “and we believe prices could spike to US$100/barrel over this period”.

Gains in oil prices will be driven by steep backwardation, the Goldman analysts said, which is when futures prices are below spot prices.

“This year remains driven by fundamentals, with better than expected demand and still depressed supply once again creating a larger deficit than even we expected,” said Goldman’s head of energy research, Damien Courvalin.

The investment bank expects the gap between supply and demand to widen this spring as production from OPEC members and allies including Russia takes longer to even out despite an increase in prices.

Brent crude price scraped all-time lows last April, with negative values seen for first time in history as stockpiles overwhelmed storage facilities as demand was crushed by the coronavirus panic.

Currently, oil traders are looking towards the OPEC+ meeting next week as the big risk event, with Saudi Arabia and Russia having differing opinions on whether to add more supply to the market in coming months.

Riyadh is said to want to hold output steady, but Moscow officials are still keen to step things up, according to Bloomberg.

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