Structural underinvestment in oil and gas will put upward pressure on oil prices, Goldman Sachs' commodities chief Jeffrey Currie told CNBC this week, commenting on commodity markets.
All markets except wheat, Currie noted, are in a deficit, and this is certainly bullish for prices. But what he calls structural underinvestment also has its part to play for the future of prices. This is particularly true for oil, where the underinvestment is not just motivated by the price rout but by the shift towards renewable energy investments.
This shift, however, may stimulate short-term demand for oil, Currie also noted, expecting it to rise over the next few years as so-called green infrastructure is being built. Afterward, as this infrastructure starts operating, there will be a negative impact on oil demand and, likely, prices.
Oil started this week with a gain as the United States began vaccinating its frontline workers, but by the end of trade, prices were on the decline again as worry about excessive supply outweighed the positive news about the vaccines.
A supply and demand update from OPEC also weighed on prices, as the cartel revised down its forecast for oil demand for this year and next. In addition, Baker Hughes' latest rig count report for the U.S. showed the most rig additions since January, fueling the oversupply worry. On top of it all, Libya has continued to boost its production, with the average daily hitting 1.28 million bpd this month, up from 1.25 million bpd at the end of November.
Despite the current challenges, Goldman is bullish on oil, expecting Brent to average $65 a barrel next year. The investment bank cited mass vaccinations and the limited increase in production from OPEC+ as factors driving the favorable trend.
Oil inventories are also declining thanks to strengthening demand from Asia, which has added to the general optimism about oil prices next year.
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
My projection is based on a few bullish factors. The first is that the global economy is projected to grow in 2021 by 5.4% compared with 3.3% in 2019 led by emerging markets particularly China and India.
The second factor is that both the global oil market fundamentals and the global economy are being invigorated by the start of mass anti-COVID vaccination around the world and the prospective opening of the global economy to business.
A third factor is that underinvestment in oil and gas will put upward pressure on oil prices. At the height of the pandemic, oil and gas investment estimated at $131 bn that were slated to be approved in 2020 were shelved, some indefinitely. This could push oil prices to between $80 and $100 by 2024.
A fourth factor is the continued OPEC+ production cuts until the end of the first quarter of 2021.
A fifth factor is that with outstanding debts approaching $1 trillion and a breakeven price of between $60 and $65 a barrel for most drillers, US shale oil could hardly expect to stage a comeback soon.
In addition, a probable end to the trade war between the US and China and a de-escalation of tension between Iran and the United States under a Biden administration could provide an additional impetus to the global economy.
In view of the above, the Brent oil price could be expected to hit $60 in the first quarter of 2021 and $70-$80 in the third quarter. This trajectory will give an average price of $65-$70 in 2021 rising to even $100 by 2024.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London
This has I think led to the rather odd situation of imports of oil into the USA soaring while exports plunge continuing to create a glut of both oil and distillate fuels further exacerbated by the profound move away from the ICE Platform as the "daily driver" for US car consumers. Coal prices are at 100 year lows in the United States as well remarkably. Taken together might explain both the collapse in equity prices for the global energy Industry but also something of a recovery at least insofar as the USA is concerned. Creating, marketing and distributing refined product in the United States is dirt cheap at the moment. Certainly great news for a US economic recovery to include "deep value" Industrial names such as US Steel and Cleveland Cliffs.