The oil market is in a bullish move and heading well into the $90 per barrel range, Bob McNally, President at Rapidan Energy, told CNBC’s Squawk Box program on Monday.
Oil hitting $100 per barrel is “entirely possible,” McNally added.
“Oil prices are climbing a wall of doubt and skepticism,” he said.
So far, traders have been focused on the lack of a significant drop in Russian supply. The market is also “dancing in a macro minefield,” McNally told CNBC.
“There are good reasons to be skeptical. But fundamentals are fundamentals. OPEC+ is going to put a huge deficit into the market into the second half,” he added.
The Saudis are unlikely to reverse the cuts at $90 or $92 oil, McNally said. The Kingdom is more likely looking to be sure that “the deficits they are creating are materializing before our eyes, before they decide to put the brake there.”
The U.S. Administration doesn’t have any good options for bringing the price of gasoline down. Should national average prices hit $4 per gallon again, there could be more draws from the Strategic PB etroleum Reserve (SPR), but this isn’t a very good option after last year’s releases from the SPR, McNally told CNBC.
Oil prices traded lower on Monday as China’s economic recovery continued to disappoint while the U.S. dollar strengthened.
The downside risks remain limited as long as OPEC+ maintain production at the current tight levels, not least considering IEA’s forecast from last week that oil demand surged to a record high in June and may rise even further, Saxo Bank analysts said in a market commentary on Monday.
Brent prices have now registered seven consecutive weeks of gains as tighter fundamentals continue to feed through to a stronger flat price and time spreads, ING strategists Warren Patterson and Ewa Manthey said on Monday.
“Sentiment remains largely positive with the oil balance set to continue to tighten, while stronger refinery margins are also providing some support,” they added.
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By Charles Kennedy for Oilprice.com
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