Crude prices could be on track to rally towards $100 a barrel with a persistent climb to multi-year highs after Opec and its allies opted against a big supply boost, energy analysts believe.
Analysts at Bank of America Global Research have said that the bank could bring forward its $100 per barrel oil price target if temperatures are colder than expected during the winter. This prospect could drive a surge in demand and widen a supply deficit.
Louise Dickson, a senior oil markets analyst with Rystad Energy, said with oil demand seemingly poised to cross the 100 million bpd mark on a more expedited track as Covid-19 restrictions are lifted, the supply response can only be described as lagging.
“Much of this slack is due to unforeseen outages such as Hurricane Ida, but there is also a greater lethargy in supply response globally, despite the relatively stable and robust price environment,” said Dickson.
Rystad analyst said prices are currently that high that they carry quite some risk for traders, with Wednesday’s wild fluctuation illustrating their fragility and vulnerability to market developments.
In the same line, analysts at Goldman Sachs recently upgraded their year-end Brent price forecast to $90 a barrel, up from $80, citing a faster than anticipated recovery in global demand.
"Opec members seem to not view rising prices as a critical problem for now," energy analysts at risk consultancy Eurasia Group said in a research note. "However, top exporter Saudi Arabia has started cutting its official selling price to its core customers, likely to ease concerns about Brent crude oil futures climbing to or above $80 per barrel."
On the demand side, energy analysts at Eurasia Group said China's industrial slowdown, the collapse of real estate giant Evergrande, rising inflation pressure and Covid-19 disruptions worldwide could all undermine oil demand growth over the next 12 months.
In the near term, a repeat of a cold winter across the Northern Hemisphere "could cause major energy supply shortages in many leading industrial hubs," they added.
Recently, Opec and non-Opec partners said they would stick to its existing pact for a gradual increase in oil supply. Opec+ said it had "reconfirmed the production adjustment plan" in a statement published online shortly after relatively swift ministerial talks. This referred to its previously agreed decision to add 400,000 barrels per day to the market for the month of November.
Moody’s Investors Service analysts have increased their medium-term oil price range to $50-$70/barrel to reflect their expectation that the full cost of production of a marginal barrel of oil will keep increasing in step with a continued recovery in demand.
"We are now returning to the medium-term price range we had before the coronavirus pandemic as we expect the cost of production to continue to rise in step with recovery in demand. We also expect that restricted supply will continue to support strong momentum in oil prices," said Moody´s senior vice president Elena Nadtotchi.
The American Petroleum Institute (API) on Tuesday reported another surprise build in crude oil inventories of 951,000 barrels for the week ending October 1.
This compares to analyst expectations for a loss of 300,000 barrels for the week. It is the second week in a row that estimates were on the wrong side of zero. — firstname.lastname@example.org
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