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Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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JP Morgan Predicts $100 Oil

  • JP Morgan's head of oil and gas research for EMEA: The reality is the chances of oil going toward $100 at this point are higher than three months ago.
  • The current situation is fundamentally no different, according to JP Morgan's analyst, who expects the oil market to swing into a deficit sometime in 2022.

It may sound far-fetched at a time when many are worrying if Brent could rise back to $50 a barrel, but at least one analyst believes the benchmark could not only recoup all that it lost in value since the start of the year but shoot up over $100 a barrel in the observable 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.

The reason is simple: the cyclical nature of the oil industry. In March, before the coronavirus pandemic really hit, JP Morgan's analysts issued a note saying the oil industry was entering a supercycle that could see the price of oil hit $190 a barrel by 2025. According to Malek, this is still a distinct possibility.

The forecast is not without a logical basis. The way cyclical industries work is that the industry produces a lot of the commodity when there is high demand for it. Eventually, supply begins to outpace demand for one reason or another. Prices then fall, the industry retreats and shrinks production to limit supply and stimulate higher prices. This brings a deficit of the commodity, which pushes prices up. This cycle repeats once every few years.

The current situation is fundamentally no different, according to JP Morgan's analyst, who expects the oil market to swing into a deficit sometime in 2022, which would push Brent to $60. This, in turn, will motivate producers to start pumping more crude. The deficit, Malek estimates, could reach 6.8 million bpd by 2025. This is what could cause prices to climb to $100 or more.

"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."

By Irina Slav for Oilprice.com

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  • One Second on June 19 2020 said:
    And that is exactly why the oil industry has already lost the game against the renewable industry and entered the phase of teminal decline like the coal industry has a couple of years prior. With the oil price being a political price first and foremost, anything is possible on the notion how OPEC+ decides. Yes, prices could shoot up for a short time before the transition to EVs caps the oil price for good, but they also could remain very low if Saudi Arabia for example is able to secure enough investement from the big oil importers like the EU, India or China which could allow them to turn on the taps for good. Which company wants to do future business on the basis of the huge range of possible oil prices ranging from close to zero to 200 $, including of course oil companies? Actually noone, everyone prefers to do business on stable and reliable or at least somewhat predictable energy pricing, exactly like renewables offer which also get cheaper by the day. All that is left for oil companies is to plan their exit from this industry as smartly as possible or follow the big coal companies into bankruptcy.
  • Mamdouh Salameh on June 19 2020 said:
    At a time when the global economy is trying to disentangle itself from the destructive COVID-19 pandemic and the global economy trying to recoup an estimated 30% demand loss against a huge oil glut estimated to exceed 1 billion barrels, it may sound far-fetched indeed for anybody to be giving any thoughts to a potential oil supply shock in 2-3 years. And yet, this is exactly what market fundamentals are already telling us.

    Three major factors could contribute to this shock. The first is a steeply declining US shale oil production to a projected 7-8 million barrels a day (mbd) this year and even 7 mbd during the next two years.

    The second factor is China’s unquenchable thirst for oil. China’s demand and its imports are already back to 2019 levels. Furthermore, China is on the way to full economic recovery by the end of the year. This is the more impressive given that many analysts estimated that China’s crude oil demand lost 20% and its economy shrank by more than 6.0% in the first quarter of the year during the pandemic.

    The third factor is that global energy investments are expected to drop by an “unparalleled” 20% this year according to the International Energy Agency (IEA). Moreover, the pandemic has forced the global oil industry to defer as much as $131 billion worth of oil and gas projects slated for approval in 2020. This could result in a supply shortage of 15-20 mbd in the next 2-3 years sending oil prices rocketing above $100 a barrel.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Bob Forbes on June 23 2020 said:
    The industry is about to have its biggest boom ever. $100 to $150 will be the new norm. And no renewables will never cut it unless we all want to go back to living the way they lived hundreds of years ago. The world runs on oil and always will. The harder you suppress prices, the harder they rebound. Great times ahead for us oilers.

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