Bank of America expects the price of Brent crude to rise to $120 a barrel by June 2022. This is 45% higher than current levels.
“It’s very easy for prices to rise when demand chokes as it is now,” said Francisco Blanche, head of global commodities at Bank of America.
Blanche’s forecast comes as an update to his earlier forecast in June that the price of crude oil will eventually reach $100 a barrel.
“At the time, people thought we were crazy,” Blanche said. “Now, here we are.” “In general, we are still quite optimistic,” according to CNN, which was reviewed by Al Arabiya.net.
Conversely, Chevron’s chief financial officer, Pierre Breper, says oil prices are unlikely to remain high for long.
“The recent increases appear more cyclical than structural,” Prieber said.
Today, Thursday, the international benchmark Brent crude contracts rose by more than 2% to reach $ 83.77 a barrel, and the US West Texas Intermediate crude contracts rose by 1.93% to $ 82.42 a barrel.
Energy demand is rising sharply
Bank of America’s optimistic forecasts for oil prices come for several reasons, and they are first, because demand continues to recover rapidly from the epidemic, especially for gasoline.
Demand is also getting another boost from skyrocketing natural gas prices. Natural gas has doubled in the United States this year and recently reached a cost equivalent to $240 per barrel of oil in Europe. The high prices of natural gas will force some facilities and factories to switch to a relatively cheaper alternative, which is oil, which will lead its prices to rise.
“This paves the way for a more congested market,” Blanche said.
Although consumers have alternatives in reducing demand for gasoline or switching to electric cars, Bank of America does not believe the change will occur anytime near current price levels.
“This demand recovery is not going to collapse at $80, $90 or even $100 a barrel,” Blanch said. He noted that although $100 a barrel is high, it comes in the context of a general high inflation.
Only strong demand will not be the cause, especially since there are supply problems, as the US is producing less oil than it did before Covid – even though prices are much higher today.
American oil companies are under tremendous pressure from Wall Street to show discipline after many years of excessive spending on expensive drilling projects. And companies shifted from spending on production to buybacks of shares and dividends.
Despite a sharp rise in oil prices by 67% this year, 50 of the largest oil companies have increased their annual budgets by only 1% over their initial plans, according to Raymond James analysis.
In turn, Raymond James analyst Pavel Molchanov said: “We are outside capitalist discipline. We are in the austerity of capital.”
Oil companies are also reluctant to increase production because demand forecasts remain uncertain given climate concerns around the world. Ultimately, oil demand is expected to peak, but no one knows exactly when and at what level.
Despite pleas from the White House, OPEC and its allies have so far refused to dramatically increase supply.
And Blanche expected, the group would not accelerate, especially as it bears fruit. He pointed to the fact that the break-even price of oil in many OPEC countries’ budgets ranges between $70 and $75 a barrel – which means that it has only now reached the break-even point.
He also questioned the ability of OPEC+ to increase production sharply after years of sluggish investment.
For her part, Helima Croft, head of global commodity strategy at RBC Capital Markets, wrote to clients in a note Monday, there is a “real question mark over which countries can really add more barrels at this point.”
Will the White House exploit US oil stocks?
All of this has led to speculation that President Joe Biden will respond to OPEC+ by unleashing the stockpile of oil stored in the Strategic Petroleum Reserve.
“We believe the Biden administration is prepared to release crude oil from the strategic reserve to reduce prices and urge producing countries to put more barrels on the market,” Croft wrote. “The US Strategic Petroleum Reserve can already be released in coordination with other consuming countries to achieve maximum effect,” she added.
Last month, Energy Secretary Jennifer Granholm suggested that SPR wiretapping is under active consideration — before the Energy Department later retracted its comments by making it clear that there was no “immediate plan” to do so.
In turn, Goldman Sachs said the release of the Strategic Petroleum Reserve would be only a “modest help,” lowering the bank’s year-end forecast for Brent crude by just $3 a barrel.
Blanche is also skeptical of such action, saying: “The Strategic Petroleum Reserve is available for emergencies and negative supply shocks.” “The SPR oil is not released because the demand is rising, especially since the US administration printed a lot of money and gave it to people.”source.