A hedge fund manager says Brent crude could hit $ 70 or even $ 80 a barrel later this year. An energy analyst predicts it could reach the next $ 100 next year. Oil is running low and suddenly everyone is bullish. But this is probably the most fragile oil price recovery in history. Something as small as a virus could kill it.
According to a recent Reuters report, herd immunity is the big factor in hedge funds. According to them and several banks, the United States – the world’s largest oil consumer – will achieve herd immunity in the middle of the year, which will coincide with the summer driving season for the benefit of oil producers.
“In the summer, the vaccine should be provided widely and just in time to travel in the summer and I think things will go to the gangbusters,” a hedge fund manager, David D. Tawil, told Reuters , by Maglan Capital.
Government stimulus will also help. In fact, it could even raise prices to $ 100 or more, according to Amrita Sen.
“We’ve always asked for $ 80 more for oil in 2022. Maybe it’s $ 100 now, given the amount of liquidity in the system. I wouldn’t rule it out,” Sen told Bloomberg this week.
Central banks and governments have been more than generous with incentives to overcome the effects of the crisis caused by the pandemic, and while some are skeptical about the long-term benefits of some measures, the general sentiment towards them is positive.
However, there are some flies in the stimulus ointment. In Europe, some analysts warn that government support for companies is creating so-called zombie companies that will collapse by the time the stimulus ends, which it will eventually have to do. In the United States, some analysts have questioned the need for a $ 1.9 trillion stimulus program from President Biden, saying the economy is already recovering, however slow it may be, and a package of stimuli as huge as this could lead to excessive inflation, which could have unexpected consequences.
And then there are the oil producers, many of whom have struggled to stay afloat since the pandemic hit the world stage. With the rise in the price of oil, the struggle will end, but it will also tempt many to start producing more, especially when demand recovers thanks to massive vaccines.
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This is the prevailing expectation: that in the summer there will be enough people vaccinated for life to start returning to normal, including oil demand. Analysts and financiers point out that oil companies are more blatant in terms of production growth this time around and will stop to return to the growth mode for longer. That may or may not be the case, but what most analysts and financiers seem to be analyzing is the possibility of a resurgence of Covid-19 infections.
It is not an idea that many would easily entertain, not after the months of blockages and travel restrictions that decimated air travel and oil demand. However, medical experts at senior positions such as the director of the U.S. Centers for Disease Control warn that new variants of the coronavirus that caused the pandemic could lead to further rises in infections. These variants appear to be spreading faster than the original virus, according to doctors, but the biggest problem is that the vaccines we have available may not be effective against them.
“They’re more virulent, they can cause more deaths, and some of them can even escape the immune response, either naturally or from the vaccine,” said Dr. Celine Gounder, a member of Coviden’s transition advisory committee. Biden-Harris. .
That’s all it would take for bullish oil price forecasts to fall and burn – a new resurgence of cases and the news that available vaccines don’t work against new virus variants. It may be that this risk makes producers so unusually cautious about their return to production growth. This caution, coupled with OPEC + continued cuts, would likely limit the negative potential of oil for a time, even if new cases of Covid-19 were to increase again in any of the larger oil markets. Related: Oil prices record the longest winning streak in two years
Interestingly, hedge funds interviewed by Reuters do not appear to be influencing the shift to renewables that is expected to permanently depress oil demand. By contrast, despite the green transition plans of many governments, financiers expect a bright future for oil, not just this year and next.
“Oil companies are likely to return for the first time in a long time,” Jean-Louis Le Mee, head of the Westback Capital Management hedge fund, told Reuters. “We have all the ingredients for an extraordinary bullish oil market over the next few years.”
It’s an interesting situation: governments and environmental groups are pushing for less oil and more renewable energy as soon as possible, announcing falling solar and wind energy costs, and advances in storage. Oil traders, on the other hand, expect a recovery in demand strong enough to raise prices to where they were before the pandemic and before the announcement of all these energy transition plans. It would be fascinating to see who ends up being right.
By Irina Slav for Oilprice.com
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