Summary: Forecasts of rising oil futures, perhaps even to $100, remain popular this month, following a strong rebound in summer travel demand and more signs that crude oil supplies will continue lagging demand throughout the next two years.
OPEC continues to consolidate an increasingly dominant position over the global oil market as US shale field production takes a back seat to drillers’ profitability. In what looks to be even more bullish for longer-term oil prices, upstream investment in development and discovery of new supply is slipping and the a portion of shale reserves that US frackers previously accounted for may have been fraudulent.
Related ETFs: Energy Select Sector SPDR Fund (XLE), Invesco DB Oil Fund (DBO)
Triple Digits Back in Style
Bank of America produced the most bullish oil prediction among major forecasters in the financial industry this week. As global oil consumption continues to outstrip supply in 2022, BofA believes brent crude prices may surge to $100 per barrel next year. That rise would follow mass transit’s struggles to keep pace with extra travel demand through next year, prompting travelers to make greater use of private cars.
Triple digit projections are becoming more popular lately. Trafigura Group, the world’s second-largest independent oil trader, recently told Bloomberg they also believe oil could top the $100 per barrel mark in the next 12 to 18 months.
Goldman Sachs currently sees brent averaging $80 per barrel through the third quarter, but expects potential spikes well above that level as well, according to global head of commodities research Jeffrey Currie. Though that is less optimistic than BofA, it still represents a rise of more than 8% from current levels.
Supply Trails Dialed-Up Demand Forecasts
When it comes to the catalysts for a continued rise in crude futures, the supply side has been more in focus recently – especially after environmentalists scored a win against Royal Dutch Shell in court and two board seats at Exxon Mobil.
As MRP noted earlier this month, a Dutch court ordered Royal Dutch Shell Plc to slash its carbon emissions much faster than the company had anticipated. Per Bloomberg, Shell had previously pledged to cut its carbon emissions by 20% within the decade, but the new verdict would order Shell to slash carbon emissions by 45% before 2030, and 72% by 2040.
Along with Exxon’s greener board and an expenditure $3 billion over the next five years to develop a low-carbon business unit, Chevron, the second largest fossil fuel producer, held a shareholder meeting in which 60% of the participants voted that the company should reduce its emissions, according to Vox.
With more spending on renewables and more stringent emissions goals to meet, concerns are rising that development and discovery of new oil supplies may have to take a back seat. At the same time, forecasters at Vitol Group see oil consumption rising for years to come, reaching 105 million to 110 million barrels per day (bpd) by 2030 – significantly higher than the approximately 100 million bpd demanded prior to the pandemic.
JP Morgan’s head of oil and gas research Christyan Malek, for instance, told the FT Commodities Global Summit last week that the bank has identified a $600 billion shortfall of upstream investment needed between 2021 and 2030 to meet what he called a “muted” view of global oil demand.
That shortfall would…