Two oil pumpjacks
Johannes Eisele/AFP via Getty Images
Oil prices have soared this year, and were back on the upswing Friday — their 10th gain in the past 11 days.
Brent crude futures were up 0.7%, to $61.54 a barrel. West Texas Intermediate crude futures, the U.S. benchmark, were up 0.4%, to $58.47 a barrel. Oil stocks have been on a tear, with one producer, Occidental Petroleum (ticker: OXY), rising 23% since the start of the month.
At these prices, some analysts have begun warning that oil is a bubble that could pop. Oil demand is still extremely depressed from pre-Covid levels, and companies may begin bringing supply back on the market if prices go high enough. The U.S. Energy Information Administration has predicted that prices will start to come down as more supply is brought on the market, and that Brent prices will average $52 this year.
But one Citigroup analyst who has successfully predicted market moves before expects the bullish run to continue — and possibly result in Brent crude rising above $70 this year. Citi’s Ed Morse said this week that the oil market was “tightening faster than expected,” with a backlog of stored oil that had built up last year quickly emptying out. Morse predicted the 2014 oil crash when many analysts were expecting strong prices to continue.
Citi expects oil storage levels to decline by about 4 million barrels a day in the first quarter and 2.4 million in the second quarter. All that excess oil that went unused during 2020 because of the pandemic will be used within the next few months, Citi projects.
“By the middle of the second quarter we project that global observable inventories will fall within the pre-pandemic five-year range of 55-60 days of forward demand cover,” Citi analysts including Morse wrote in a report published Wednesday.
The analysts see Brent averaging $64 a barrel this year. By 2022, however, they expect oil producers to start pumping more, resulting in prices falling somewhat. Their 2022 average price expectation is $58.
Other analysts also have bullish predictions for oil. Bank of America’s Francisco Blanch wrote on Thursday that oil demand could rebound strongly over the next three years, defying expectations for a near-term peak in demand.
“Looking into the next three years, we see a window of strong oil demand growth ahead,” he wrote. “Much of the growth should be front-loaded in 2021, with consumption picking up by 5.3 million barrels a day this year, followed by an increase of 2.8 million next year and 1.4 million in 2023. Should our expectations play out, this would be the fastest 3 year pace of growth since the 1970s in absolute volumes.”
Blanch expects the peak to come around 2030 as electric vehicle sales ramp up.
Write to Avi Salzman at [email protected]
