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Bank Of America: $90 Brent May Be Around Corner

Bank of America Merrill Lynch (BofAML) warns that Brent crude oil could reach $90 per barrel stemming the new IMO rules regarding shipping fuels and a weaker dollar courtesy of a de-escalation in the US/China trade war, Reuters reported on Friday.

BofAML claims that the IMO rules regarding the allowable sulphur content, to take effect in 2020, could cause a spike in middle distillate demand, pressuring prices upward. Also pushing up prices could be the weakening dollar should the trade war between China and the United States simmer down.

In February, BofAML estimated that Brent crude would be trading within the $50 to $70 per barrel band through 2024, with prices “anchored” around $60 per barrel, citing rising US shale supplies and slowing oil demand growth. Shorter term, BofAML saw Brent rising to $70 per barrel citing tighter supply as Venezuela, Iran, Mexico, and OPEC produce less oil—some on purpose and some not.

Last May, BofAML warned that oil could rise as high as $100 per barrel this year. At that time, Brent was trading near $77.

Along with its $90 per barrel warning, BofAML said there was a risk that Brent could dip to $50 per barrel, if the trade war between China and the United States were to hurt consumer sentiment and lead to an economic downturn.

“With military tensions rising in the Middle East and trade tensions rising between the U.S. and China, we believe that chances of a tail event driving Brent crude to these price extremes (are) higher than what option markets are currently pricing,” BofAML said in a note on Friday.

Brent options show a 10% chance of prices heading north of $90, and just a 6% chance of it falling below $50 per barrel.

By Julianne Geiger for Oilprice.com

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Julianne Geiger

Julianne Geiger is a veteran editor, writer and researcher for Oilprice.com, and a member of the Creative Professionals Networking Group. More

Comments

  • Bill Simpson - 19th May 2019 at 8:16pm:
    De-escalation of the trade war with China? In what universe, with Huawei targeted for a possible death sentence if Trump goes all in, unless he gets what he wants with the Chinese caving in to Trump's demands. That will be the first time in human history when 1.4 billion people obeyed the wishes of 320 million. But I guess it could happen.
    The hard liners around Trump want China destroyed. That is impossible, but doesn't mean they won't try. Trump gets a final term, and he won't care what happens to the world economy. It will be time to play golf every day, and cut foreign business deals the rest of the time. And maybe hold an occasional rally to boost his ego, if he can find a way to charge admission. He might make rally attendance a credit course at Trump University.
  • Armondo DeCarlo - 24th May 2019 at 10:17am:
    More like $40 oil is just around the corner.
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