It could be a hot summer ahead for oil prices
Oil prices could temporarily spike to $80 per barrel or more this summer as demand comes roaring back.
The reopening economy has already sent crude up about 40% since the start of the year, but a surge in driving by Americans, as well as an increase in goods transportation and air travel, could pressure prices further.
For consumers, that means the typical early summer peak in gasoline prices could come later in the season. Unleaded gasoline was $3.04 per gallon on average Wednesday, about a penny higher than last week but more than 50% higher than a year ago, according to AAA.
Uncertainty around higher prices
Energy analysts agree the world is in for a period of higher prices, but they do not agree how high or for how long. Blanch said Brent has already hit his $70 target for the quarter, but he has a much more bullish longer-term view than others.
“We think in the next three years we could see $100 barrels again, and we stand by that. That would be a 2022, 2023 story,” Blanch said. “Part of it is the fact we have OPEC kind of holding all the cards, and the market is not particularly price responsive on the supply side and there is a lot of pent-up demand ... We also have a lot of inflation everywhere. Oil has been lagging the rise in prices across the economy.”
Rising demand amid the recovery
For now, oil production has not kept up with demand, as global economies rebound. Even after OPEC+ committed Tuesday to return crude to the market, the price of oil continued to tick up.
“Welcome to the post-pandemic world,” said Daniel Yergin, vice chairman of IHS Markit. “We’re seeing demand is growing rapidly between the first quarter and the third quarter by 7 million barrels a day.”
Yergin said his Brent target is an average $70 per barrel this year.
“The return of Iranian barrels does not appear to be an imminent issue for the oil market with the fifth round of nuclear negotiations in Vienna failing to produce a major diplomatic breakthrough,” wrote Helima Croft, head of global commodity strategy at RBC.
Bullish demand and price forecasts have supported the gain in crude prices this week, according to John Kilduff of Again Capital. He said OPEC predicted that demand could reach 99.8 million barrels a day by the end of the year, but supply is expected to reach just 97.5 million barrels a day.
“I’ve been bullish for awhile now,” said Kilduff. He expects to see Brent hit $80 a barrel and WTI trade between $75 and $80. “The demand trends have been exploding ... The real throes of this I imagine will come as we get closer to Labor Day.”
Reference: CNBC
Read More: https://www.cnbc.com/2021/06/
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