The current oil crisis will severely depress investments in new oil production, setting the stage for oil prices hitting $100 or even $150 a barrel over the next five years, several analysts told The Wall Street Journal.
Analysts are basically divided into two camps – the ones predicting high oil prices because of the pandemic and the resulting severe underinvestment in new oilfields, and the ones saying that life in the new normal will mean that demand may never return to pre-COVID-19 levels.
In the bulls’ camp, Trevor Woods, chief investment officer of Ohio-based hedge fund Northern Trace Capital, told the Journal:
“We could hit $150 pretty easily by 2025.”
Woods motivated his prediction with upcoming massive pressure on producers for funding new developments.
Christyan Malek, JP Morgan’s head of oil and gas research for Europe, the Middle East, and Africa, also thinks that oil could hit $100 per barrel, due to the dramatic decline in investments.
According to the International Energy Agency (IEA), the oil and gas sector will see the steepest decline in investment this year compared to last year. Investment in oil and gas is set to plunge by $244.1 billion, or by nearly one-third, in 2020 compared to 2019.
“Could we see oil move to $100 over the next two years?” “Absolutely,” JP Morgan’s Malek told the Journal, reiterating a similar bullish estimate from last month.
Citigroup, however, doesn’t believe that crude oil prices will return to three-digit levels ever again.
The idea of oil at $100 or higher, “has far more fantasy than reality at its heart,” Citigroup commodity analysts said in a note earlier this month, adding that over the long term, $45 per barrel of Brent was a far more likely oil price scenario than $60 a barrel.
In more pessimistic news, the Citi analysts said, “Oil product demand growth will falter significantly, change its contours and never return to pre-covid-19 rates of growth.”
By Tsvetana Paraskova for Oilprice.com
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