$ 70 oil is likely now, says a senior analyst

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Oil prices have soared this year and are back on Friday, their tenth gain in 11 days.

Brent crude futures rose 0.7% to $ 61.54 a barrel. West Texas Intermediate crude oil futures rose 0.4% to $ 58.47 a barrel. Oil stocks have plummeted, with one producer,

Western Petroleum

(ticker: OXY), which has increased by 23% since the beginning of the month.

At these prices, some analysts have begun to warn that oil is a bubble that may appear. Demand for oil remains extremely depressed from pre-covid levels, and companies can begin to regain supply in the market if prices rise enough. The U.S. Energy Information Administration has predicted that prices will begin to fall as more supply enters the market and that Brent prices will average $ 52 this year.

But a Citigroup analyst who has successfully forecast market movements before expecting the uptrend to continue, and which will possibly result in Brent crude rising above $ 70 this year. Citi’s Ed Morse said this week that the oil market “was narrowing faster than expected,” with a stockpile of stored oil that had accumulated last year and quickly emptied. Morse predicted the fall in oil in 2014 when many analysts expected strong prices to continue.

Citi expects oil storage levels to decline by about 4 million barrels per day during the first quarter and 2.4 million in the second quarter. All that excess oil that was left unused during 2020 due to the pandemic will be used in the coming months, according to Citi.

“By the middle of the second quarter, we project that observable global inventories will fall within the five-year pre-pandemic period of 55 to 60 days of future demand coverage,” Citi analysts, including Morse, wrote in a report released Wednesday .

Analysts see Brent averaging $ 64 a barrel this year. By 2022, however, they expect oil producers to start pumping more, leading to a drop in prices. Its average price expectation for 2022 is $ 58.

Other analysts also have bullish predictions about oil. Francisco Blanch of Bank of America wrote Thursday that oil demand could rebound sharply over the next three years, defying expectations of a short-term peak in demand.

“Looking ahead to the next three years, we see a window of strong growth in oil demand,” he wrote. “Much of the growth should be frontally charged in 2021, with consumption rising 5.3 million barrels a day this year, followed by an increase of 2.8 million next year and 1.4 million on 2023. If our expectations were met, this would be the fastest growth rate in 3 years since the 1970s in absolute volumes. “

Blanch expects the peak to reach around 2030 as electric vehicle sales increase.

Write to Avi Salzman at [email protected]