According to Bank of America Corp (NYSE:BAC)’s analyst Francisco Blanch, oil prices could peak to $100 next year if the high demand continues. The limited supply and ineffectiveness of shale in the U.S. have sent oil to the highest since 2013.
Brent surpassed the October 2018 high by reaching $75 a barrel, and things are bound to get worse by the increasing demand as the economic rebound shapes up.
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Low crude inventories in the U.S.
Royal Bank of Canada (TSE:RY) stated: “Shale drilling in the U.S. became so productive in the middle of the last decade that it seemed that supply would always remain high enough to keep prices low, regardless of what OPEC and other oil-producing countries did.”
As informed by the U.S. Energy Information Administration, crude inventories in the country dropped by 7.6 million barrels last week to 459.1 million barrels, way over analysts’ predictions of 3.9 million polled by Reuters.
From Trafigura Group to Goldman Sachs Group Inc (NYSE:GS), they anticipate that oil could reach $100 under the right conditions.
Pandemic slowed down U.S. drilling
COVID-19 caused fuel prices to drop and forced producers to slow down drilling. However, what followed was a real surprise.
Instead of reverting to normal drilling rates when demand for fuel picked up again, most producers held back to save liquidity and keep their balance sheets low. At present, U.S. oil production is nearly 12% below its peak levels, and few analysts expect the activity to become more dynamic.
Additionally, OPEC has restricted drilling, which means that “the demand for fuel is increasing, but the supply has not yet recovered, pushing prices up,” as noted by JPMorgan Chase & Co (NYSE:JPM) experts.
“It is almost certain that electric cars will cause a drop in demand for oil, but last year those assumptions were turned around,” add JP Morgan.
In fact, according to Phil Flynn, senior analyst at Price Futures Group in Chicago, “People are getting back in their cars again and that’s showing up in the numbers in a big way. That's going to keep the upward pressure on prices.”
Analysts warn that the global demand for oil is bound to increase in the second semester of 2021, so the OPEC alliance could “boost production further from August, and the coming meeting next week is expected to be material for policy and prices going forward,” said Rystad Energy oil markets analyst Louise Dickson.