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Bank Of America Sees $120 Oil Next Year

Brent Crude prices could rise to as much as $120 per barrel in the first half of 2022 due to the global gas crisis, booming air travel with international flights returning, and a comeback of Asian demand, Bank of America says.

Although the U.S. is not very exposed to the natural gas crisis, Europe and Asia are, and the gas to oil switch will raise demand for crude, Francisco Blanch, global head of commodities and derivatives research at Bank of America, told Bloomberg on Tuesday. 

The other major driver of higher demand and higher oil prices would be a big return of travelers after the U.S. re-opened borders to international vaccinated travelers on Monday.

There will be a “booming air travel window for the next six months and presumably you’ll have Asia coming back with the vaccine rollout there,” Blanch said.

Amid rising demand, the global oil market faces “supply rigidities,” according to Bank of America.

Those supply rigidities are both the result of the past and the future of the sector. The past supply rigidities lie in the “terrible returns” for the oil sector in the past six-seven years, Blanch told Bloomberg.

“Investors are really tired of throwing good money after bad money,” he added.

The future supply rigidities lie in the uncertainty over how oil demand will fare in the energy transition.

“We don’t know where global oil demand is going, how fast the energy transition will happen and that is a big hurdle to bring money back into the sector,” Blanch said.

Asked about the possibility that the U.S. Administration release crude from the Strategic Petroleum Reserve (SPR), Blanch said that “releasing SPR and at the same time printing a lot of money to give to the people is a pretty bad idea,” suggesting that the U.S. should pare back stimulus before releasing SPR, which is for emergency purposes.

“Is it an emergency that we have booming demand for oil now that we are coming back from COVID? Not really an emergency,” Blanch said. “You’ll have to let the market do its work,” he added.

By Tsvetana Paraskova for Oilprice.com

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