Brent crude could reach $ 70 or even $ 80 a barrel by the end of this year, says one hedge fund manager. The forecast of an energy analyst could top $ 100 next year. Oil is tearing, and suddenly everyone is clumsy. But it is probably the most fragile oil price recovery in history. Something as small as a virus can kill it.
Herd immunity is the biggest factor for hedge funds, according to a recent Reuters report. According to them and several banks, the United States – the world’s largest oil consumer – will reach herd immunity by the middle of the year, which will coincide with the summer season to the benefit of oil producers.
“By summer, the vaccine should be widely available and just in time for summer travel, and I think things are going to go bustbusters,” David D. Tawil of Maglan Capital, a hedge fund manager, told Reuters.
Government incentive will also help. In fact, it could even raise prices to $ 100 and up, according to Energy Aspects’ Amrita Sen.
‘In 2022, we always asked for $ 80 plus oil. Maybe it’s now $ 100 given how much liquidity there is in the system. I would not rule it out, “Sen told Bloomberg this week.
Central banks and governments have been more than generous in resisting 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.
There are some flies in the stimulant ointment. In Europe, some analysts warn that government support for businesses is creating so-called zombie businesses 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 demand for President’s Biden stimulus program of $ 1.9 trillion, saying the economy is growing slowly, and a stimulus package as large as this could lead to excessive inflation, which can have unexpected consequences.
And then there are the oil producers, many of whom have been struggling to stay afloat since the pandemic hit the world stage. With rising oil prices, the battle will end, but it will also tempt many people to start producing more, especially as demand recovers thanks to mass vaccinations.
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This is the predominant expectation: that during the summer there will be enough people who will be vaccinated for life to become normal again, also in the demand for oil. Analysts and financiers note that this time oil companies are much warmer about production growth and will return to growth mode for longer. This may or may not be the case, but what most analysts and financiers appear to be is the possibility of a revival in Covid-19 infections.
It’s not a thought that would entertain much, not after the months of locks and travel restrictions that have reduced air travel and the demand for oil. Yet medical experts in senior positions, such as the director of the U.S. Centers for Disease Control, warn that the new variant of the coronavirus that is causing the pandemic could indeed lead to new infections. These variants appear to spread faster than the original virus, medics said, but the bigger problem is that the vaccines we have available may not be effective against them.
“They are more virulent, can cause more death, and some of them may even escape the immune response, whether naturally or through the vaccine,” said Dr. Celine Gounder, a member of the Biden-Harris Transition Covid Advisory Board, last week. said. .
That’s all that is needed to make the predictions for oil prices crash and burn: another surge in cases and the news that available vaccines are not working against the new virus variants. It could very well be this risk that makes producers so unusually cautious about their return to production growth. This caution, coupled with OPEC +’s continued cuts, is likely to limit the downside potential of oil for some time to come, even as new Covid-19 cases begin to rise again in any of the major oil markets. Related: Oil prices reach the longest finish line in two years
Interestingly, the hedge funds with which Reuters interviewed do not appear to be playing a role in the shift to renewable energy, which is expected to permanently suppress oil demand. On the contrary, despite the government’s green transition plans, financiers expect a bright future for oil, not just this year and next.
“Oil companies are likely to make a big comeback for the first time in a long time,” Jean-Louis Le Mee, head of hedge fund Westback Capital Management, told Reuters. “We have all the ingredients for an extraordinary bull market in oil for the next few years.”
This is an interesting situation: governments and environmental groups are campaigning as soon as possible for less oil and more renewable energy, which offsets the declining costs of solar and wind and the breakthroughs in storage. Those who trade oil, on the other hand, expect a recovery in demand that is strong enough to raise prices to where they were before the pandemic and before the announcement of all these energy transition plans. It will be fascinating to see who is ultimately correct.
By Irina Slave for Oilprice.com
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