Oil prices could surge to $100 barrel within the next two years, according to a senior analyst at US investment bank JP Morgan.
The oil and gas industry has been hit hard as the coronavirus pandemic erases global demand for petroleum products. Prices for crude are currently around 40 percent lower than at the beginning of the year, but market turmoil saw the price for US oil plunge below zero for the first time in history last month.
“We see oil going to $100 within two years, and [in] the near term, clearly, it’s very tough. And so we have an oil price that should sit somewhere between $35 and $40 by the end of the year,” said Christian Malek, the head of EMEA oil and gas equity research at JP Morgan on Wednesday.
The bullish projection of $100 per barrel is in response to the huge amount of supply being removed from the market, Malek said.
Many of the world’s leading oil producers struck a historic oil output cut deal in early April to reduce their output by more than 20 percent.
“On a two to three year view, we see a huge supply response, a lot of oil coming off the market, and we are very bullish on the long term viewpoint,” Malek added.
Meanwhile, in the US where oil exports have grown dramatically from years of rocketing shale oil production, the ramifications of the low price environment will be drastic. Shale oil producers have already been suffering as many require significantly higher prices than other producers to maintain production. The fall in oil prices from the coronavirus crisis has caused some to fall into bankruptcy, and others closing down production altogether.
“I'd expect as we go to the second half of this year, as we see demand bottom, and we see the OPEC cuts coming into play and potentially deeper cuts … That taken together [we] should see oil higher than where it is today, closer to $40 by the end of the year,” Malek explained.
The fall in oil prices this year has left both major and minor oil players slashing their capital expenditure investment as businesses look to hunker down and run lean operations as bottom line profit is eroded.
This effect will lead to a supply shortage in the long run, contributing to higher pricing in the future, Rystad Energy’s Head of Oil Markets Bjornar Tonhaugen said.
“WTI and Brent [oil prices] will strengthen a bit in 2021 … and then rise quite a lot, around double the 2020 levels in 2022 as demand will be back up, but supply will not be where it normally would [be] due to the shut-downs and the lack of investments and drilling,” he said. “The high price levels of 2022 are expected to be largely maintained till 2025.”
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