Speculating on the price of oil is a favorite pastime in certain circles, and these include hedge funds. One prominent member of the hedge fund crowd this week said crude could rise to US$300 a barrel if current prices fail to rise further-and soon-to stimulate investments in new production.
Pierre Andurand, head of Andurand Capital Management LLP, wrote in a series of tweets that were later deleted that "If oil prices do not rise fast enough, $300 oil in a few years is not impossible," as quoted by Bloomberg.
Andurand seems to be one of a small group that also includes Saudi Energy Minister Khalid al-Falih, which believes prices can rise further, even to US$100 without affecting demand. Producers, Andurand said in the tweets, are afraid of peak oil demand resulting from the growing adoption of electric vehicles, and this is stopping them from investing in more new production. "So paradoxically these peak demand fears might bring the largest supply shock ever," Andurand said.
The hedge fund manager believes that crude oil should trade at more than US$100 a barrel to stimulate this much needed, in his view, investment, notably outside the United States where it is obvious that E&Ps are faring well with production growth even at current oil prices. Related: Venezuela Offers India 30% Discount On Oil...If It Pays In Cryptocurrency
It might be worth noting, as Bloomberg did, that Andurand's fund posted a 10 percent decline in returns over the first two months of the year on the back of the seesaw in oil prices.
Most observers of the oil industry seem to be in disagreement with Andurand's bullish views. After almost three years of cheap oil that spurred more buying from the largest importers in the world, a sharp price rise is likely to have an impact on every economy, especially oil-dependent ones, and this effect is unlikely to be in the form of higher oil demand.
In fact, some believe that the big winners from higher oil prices will be renewable energy and electric cars-especially the latter-as production costs there fall, and this makes them more competitive with ICE cars, even preferable in certain circumstances, possibly even bringing about that peak demand that E&Ps are so afraid of right now.
Please feel free to join the discussion on $300 oil here.
By Irina Slav for Oilprice.com
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Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry. More
Comments
He turned bullish on crude oil in early 2016, and monthly Brent crude oil prices have risen an an annualized rate of about 40%/year since hitting the monthly low for this cycle of $31 in January, 2016.
"Could Oil Actually Hit $300?"
Case-in-point: Consider this as a headline:
"Could Oil Actually Be $5?"
That last headline was made up by me, of course, but if you find that insulting or outrageous and yet are not bothered by the "$300" headline then there is clearly a double-standard of hypocrisy.
I mean, the numbers just keep going up and up: $40, $50, $60, $70, $80 - $100, now $300...Well, trust me when I tell you that before we go back to $147/bbl on WTI there will be serious conflicts, let alone $300.
The world cannot sustain high oil prices, therefore abandoning everything to do with oil from energy, to plastics, to lubricants will all be a reality long before then. Oil is not a necessity of life. Once and for all, no one is born into this world owing any oil producer or bullish hedge fund manager anything.
How high could oil prices rise is determined by market fundamentals, global investments and the determination of oil producers around the world to maximize the return on their finite assets.
According to the IEA, global investments amounting to $41 trillion are needed between now and 2040 to develop energy resources so as to meet global demand by then.
Market fundamentals are of prime importance. The current positive fundamentals could easily support oil prices ranging from $75-$80 a barrel. To go higher, both global economic growth and global oil demand should reach almost double the current levels, meaning that global economic growth should rise from the current 3.9% to 5% and global oil demand should grow at double the current range of 1.7-2.0 mbd.
The third factor is what I have been advocating that oil producers around the world should aim to maximize the return on their finite assets to whatever level the global economy permits them.
In the absence of enhanced global investments as mentioned above coupled with rising global oil demand at double the current rate, we could certainly see oil prices at least hitting $145-$150.
Still, I have calculated that a fair price for oil ranges from $100-$130 a barrel. Such a price is good for the global economy as it enhances global investments, provides a good return to oil-producing nations to enable them to expand their production capacity and also enables the global oil industry to balance its books and expand future investments.
And while a wider use of electric vehicles (EVs) may help decelerate the global oil demand and oil prices, oil will continue to reign supreme throughout the 21st century and far beyond. A post-oil era is a myth.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London