After April witnessed an unprecedented drop into negative territory for crude oil, now analysts at JP Morgan are predicting the volatile commodity could be headed for $100 a barrel.
It may sound incredulous at a time when many are concerned that Brent may not even make it back above $50 a barrel, but at least one analyst feels the benchmark could not only recoup all that it lost in value since the start of the year but rocket over $100 a barrel in the foreseeable future.
“The reality is the chances of oil going toward $100 at this point are higher than three months ago,” JP Morgan’s head of oil and gas research for EMEA, Christyan Malek, said as quoted by CNN.
Malek attributes the projection to the cyclical nature of the oil industry. In March, before the coronavirus pandemic was having a considerable effect on demand, JP Morgan’s analysts issued a note saying the oil industry was entering a supercycle that could envision the price of oil hit $190 a barrel by 2025. While WTI crude oil is trading at only roughly $40 a barrel currently, according to Malek, the run-up is a genuine possibility.
While the technical chart has witnessed a dramatic surge in WTI crude since April, and markets could be posed for a move higher, the fundamentals may be moving in line as well, with rig count and production dropping.
Baker Hughes reported on Friday that the number of oil and gas rigs in the US fell again this week, by 13, to 266, suggesting that the slide in the number of active rigs is not yet over. The total oil and gas rigs is now sitting at 701 fewer than this time last year, as the tally of active rigs in the United States has continued to drop over the last several months.
The significant fall in the rig count over the last couple of months is also reflected in the steady decline of EIA’s estimate for oil production in the United States, which slipped again this week to 10.5 million barrels of oil per day on average for week ending June 12, which is 2.6 million bpd off the all-time high and 600,000 bpd less than the week before. Production has dropped for almost 3 months straight.
JP Morgan’s analyst, projects that the oil market will move into a deficit sometime in 2022, which would push Brent crude to $60 a barrel, stimulating producers to pump more oil. The shortfall, Malek estimates, could reach 6.8 million bpd by 2025, causing prices to crest $100.
“The deficit speaks for itself. That implies oil prices will go through the roof,” Malek told CNN. “Do we think it’s sustainable? No. But could it get to those levels? Yes.”
The United States Oil Fund, LP (USO) is up 1.61% amid Malek’s comments, while the ProShares Ultra Bloomberg Crude Oil (UCO) gained 3.65% Friday.
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