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Tuesday, June 22, 2021

A new oil supercycle: will a barrel reach $100?

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Aakash Molpariya
Aakash started in Nov 2018 as a writer at Revyuh.com. Since joining, as writer, he is mainly responsible for Software, Science, programming, system administration and the Technology ecosystem, but due to his versatility he is used for everything possible. He writes about topics ranging from AI to hardware to games, stands in front of and behind the camera, creates creative product images and much more. He is a trained IT systems engineer and has studied computer science. By the way, he is enthusiastic about his own small projects in game development, hardware-handicraft, digital art, gaming and music. Email: aakash (at) revyuh (dot) com

A year ago it seemed that nothing was going to save the oil market from a crisis. Overproduction, the pandemic, and disputes among exporters over the need to approve further cuts caused prices to hit all-time lows. However, now different analysts point to a possible “rebirth” of the industry.

JPMorgan Chase and Goldman Sachs, two of Wall Street’s biggest financial conglomerates, talk about the beginning of a new oil “supercycle.” Both entities predict that prices will skyrocket when the pandemic recedes. The most optimistic forecast is that crude prices could once again approach $ 100 a barrel, a level not recorded since 2014.

Analysts expect increased demand

This improvement is based on the idea that the fiscal stimulus adopted by the governments would boost the consumption of crude oil. As a result, an imbalance between demand and supply is possible, which will fuel a lasting increase in prices.

“In the next few years, we are going to lack oil (…). We could see how crude oil soars towards, or even above, $ 100 a barrel,” warned one of the directors of JPMorgan, Christyan Malek, during a conference call, sustained with the bank’s clients.

For his part, Goldman Sachs analyst Jeffrey Currie, who was a key voice in the last oil supercycle between 2003 and 2014, told the British newspaper Financial Times that he believes there is some chance that oil will reach $ 80 this year. “or even more”.

Soon the Biden Administration plans to approve a plan that plans to spend 1.9 trillion dollars to stimulate the US economy.

“This type of stimulus targeting low and middle-income [households] creates significant and heavy consumption of commodities [like oil]. These people don’t drive Teslas [cars that don’t use fossil fuels]. They drive SUVs,” Currie noted.

In turn, Arjun Murti, advisor and member of the board of directors of an energy company, shares a less optimistic point of view. He believes that talks about the start of another oil supercycle are “premature”, but admits scenarios in which prices strengthen significantly.

“There are still some obstacles to overcome, but the strength of the demand will decide that a lot,” Murti added.

Murti became one of the most famous oil analysts of the last supercycle after predicting in 2005 that crude could exceed $ 100 a barrel while working at Goldman Sachs. He later predicted that its price would hit $ 150-200 per barrel before it peaked at $ 147 on the eve of the 2008 financial crisis.

Before the pandemic, world oil demand was around 100 million barrels a day. In 2020, it fell to an average of about 90 million barrels a day and analysts predict that it will not reach pre-pandemic levels until 2022.

Murti argues that if demand for oil grew by about 500,000 barrels a day in the coming years, it would be insufficient to create an imbalance with supply. However, if that growth were to increase to 1.2 or 1.4 million barrels per day, as this happened after the collapse of prices in 2014 and 2015, it could unleash a new supercycle.

Other economic factors that will drive oil higher

Now no one doubts that world markets depend on each other. The US and Europe began to help their economies, accelerating the printing of money. These measures could cause inflation to rise considerably. And if officially the prices of goods traded locally do not grow as much, assets traded in global markets such as stocks, real estate, metals, and oil are becoming more expensive at a rapid rate.

“Oil, like gold, is rising in response to inflation expectations,” said Guennadi Sálich, chairman of the board of directors of Freedom Finance bank.

Another fiscal stimulus that Washington could approve in the near future could cause further growth in all assets, including oil. The weaker the dollar, the more expensive the raw material will be.

Also, the price of black gold will accelerate its growth due to seasonal weather factors. The winter cold in the northern hemisphere of the planet has considerably increased the demand for fuel.

Thus, on February 15, as a result of a series of blackouts, at least four million Texans were left without heat and electricity. Of course, it is not the only American state to suffer from the problem. 

The cold wave has also affected electricity production in 14 other states in the North American country, from the two Dakotas to Oklahoma, and has derailed energy markets in countries such as Japan and France.

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