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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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Could Oil Really Reach $200?

Oil is about to post its fourth week of gains in a row, and the outlook remains bullish thanks to supply constraints and demand strength. But one hedge fund manager is even more bullish than that.

Doug King, head of the Merchant Commodity Fund, enjoyed record returns last year, gaining 74 percent in 2021 and beating its previous record of 59 percent set in 2014—another boom year for oil right before the bust. But now, King is expecting further gains in the price of oil, saying it could even reach $200 per barrel over the next five years.

“We believe in structural supply-side commodity inflation that most will not have ever seen -- the highest since the 1970s,” King told Bloomberg in an interview, adding, “Only OPEC will react to price metrics and they are undershooting every month.”

OPEC and its OPEC+ partners have been struggling to produce as much as it has agreed to under its production control agreement that came in response to the devastation that the pandemic wrought on the oil market in 2020. Only a few members of the extended cartel have the capacity to boost production in line with quotas while the rest are finding it hard, prompting worry about future oil supply in a strong demand situation.

“In practice, a lot less oil is making its way to the market,” the Merchant Commodity Fund wrote in its investor letter, as quoted by Bloomberg. “Its members are simply unable to return to pre-covid levels of output. This is all down to a lack of investment.”

Russia is a notable example of a producer that is nearing the limit of its available production capacity, the fund’s management also noted in the letter.

What this means for prices is further upward potential, especially if demand continues as strong as it is currently.

By Irina Slav for Oilprice.com

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  • Mamdouh Salameh on January 14 2022 said:
    In the next five years (2022-2027) crude oil prices are projected to be on an upward trajectory which could take Brent crude price to $110-$120 a barrel in what could be seen as real signs of a supercycle. Meanwhile, we can see $100 oil by the fourth quarter of 2022 or the first quarter of 2023 because of widening supply deficit resulting from underinvestment during the last two years in oil and gas.

    But I don’t think we will see $200 oil over the next five years unless there is a closure of the Strait of Hormuz for a lengthy stretch of time in an armed conflict involving the United States and Iran or a rapid escalation of tensions between Taiwan and China developing into a military confrontation involving he United States.

    Long-term a $200 oil could become a reality when the last barrels of oil produced will most probably come from the Arab Gulf region, Venezuela’s Orinoco Belt and Russia’s Arctic.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London
  • Brewster Douglas on January 15 2022 said:
    That’s all well and good, but where exactly are you going to find experienced people to work the patch. All the ones that were let go back in 2015 are either retired or were driven out and made new stable lives in new places transferring their skills over to other industries. Young people won’t touch this industry for good reason. Recruitment crises ? Yes, right now we are sitting on the cusp of the largest and longest boom we will have ever known in this industry, and we cannot find the skills that we need.

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