Decade of chaos could send oil at $ 130 a barrel

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From $ 35 a barrel to $ 130 a barrel, that’s the range of oil prices in the next few years that we might see, according to a commodities trading group. And it will all depend on which culminates first: demand or investment in new production. “You could see peaks of up to $ 100 a barrel, even $ 130, and you could also see it go down to $ 35 a barrel for periods of time to come,” said William Reed II, managing director of Castleton Commodities. International, during the press conference. FT Global Commodities Summit this week, as city by Reuters. “The question is, what happens first? Peak demand or peak investment? “

This is a fascinating question that will likely remain open for some time; forecasts appear to be even more unreliable than usual in the post-pandemic world. For example, last year energy authorities and the industry itself predicted that the growth in demand for oil was over thanks to the pandemic which encouraged a doubling of the energy transition from fossil fuels. However, these same forecasters, including the International Energy Agency and PA, speak of a growing demand for oil.

One thing that can hardly be disputed is that lower exploration spending would inevitably lead to lower production. This is what we saw: The pandemic has forced virtually everyone in the oil industry to cut their spending plans. This is what normally happens during the trough phase of an industrial cycle.

Related: Oil Prices Fall As Fed Changes Tone What doesn’t normally happen in a typical cycle is long-term planning for smaller production. Yet this is Big Oil’s response to the pressure to go green. Most supermajors are planning changes that would effectively reduce their oil and gas production. In Shells In this case, a Dutch court literally ordered it to cut back its oil and gas production.

So it’s pretty clear that supply is tightening, and oil prices reflect that. In fact, supply has shrunk so much lately that even the International Energy Agency, which earlier this year called for a suspension of all new oil and gas exploration, is now call for more supply. This is the perfect illustration of the difficulty of predicting where oil prices will go, even in the short term, let alone several years.

According to Castleton’s Reed, an upturn in oil prices was to be expected. In this, he is the latest in the growing chorus of voices predicting higher prices, even north of $ 100 a barrel, for too long. However, according to some, they could stay there only a short time and never reach the same levels.

Earlier this month, a report by the Boston Consulting Group titled The latest oil price boom could be in sight suggested that what we are seeing right now may not only be the latest rise in oil prices, but also the shortest. The consulting firm noted the rapid rise in prices since the start of this year as an indication of the “compressed period” of the boom.

“This rapid increase will put pressure on suppliers, who will increase investments to meet growing demand, and end-users, who will take advantage of the efficiency as well as new technologies increasingly available to mitigate or even completely avoid , the price of oil and the emissions from it, “wrote the authors of the Boston Consulting Group report.

Related: Is China Finally Moving Away From Coal?

Oil prices are indeed moving faster than usual, but if we’re fair, the past year has been anything but usual. The biggest consequence of the pandemic has been a boom in uncertainty, which has made forecasting much more difficult than before. As noted above, oil demand forecasts are a good example of this increased uncertainty. There are also challenges facing the energy transition push that could derail or at least postpone it. This contributes to the uncertain future of oil prices and the supervolatility argument.

Solar panel prices are on the rise, for example. The reason is the supply chain disruptions caused by the pandemic. There is also an emerging environmentalist opposition to large-scale solar farms. Problems such as the supply of copper for wind turbines and electric vehicles, and minerals for batteries also cloud the outlook for the energy transition and implicitly work in favor of oil and gas.

So, it’s easy to see how Brent crude could hit $ 100 a barrel before the end of this year if demand continues to pick up at the current rate. Even the additional OPEC + offer arriving in the markets next month may not be enough to reverse the trend.

It’s a little harder to see oil drop to $ 35 a barrel unless you add a lot more supply. It would be a perfectly realistic scenario in any other cycle. From now on, OPEC and external producers are wary of the energy transition and its expected effects on their activity, and are in no hurry to restart production. The question of which will come first, peak demand or peak investment, remains open.

By Irina Slav for Oil Octobers

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