The Wall Street Journal and numerous others are reporting that Wall Street investment firms are calling for a return to $100 a barrel oil prices in the foreseeable future.

What does “foreseeable” mean? The forecasters see it happening by 2023 or possibly during the second half of 2022. That would take oil prices back to the high prices last seen in June 2014. Back to the glory days, or will the high oil price call be just another disappointing prediction? 

Workboat’s Jim Redden recently wrote that it is ”unlikely” we will experience a rerun of 2013 when oil last attained the $100 threshold. He cited several conditions that are different today from the last peak oil price environment — people throwing money at shale oil producers, investors shunning energy investments, and the push to decarbonize the world’s energy system. While these conditions reflect a different world than in 2013, they do highlight forces that could drive oil prices back to those historically lofting levels.

E&P company financial discipline is making it difficult to project much growth in oil supply. In fact, as Redden points out, the Energy Information Administration (EIA) is calling for U.S. oil output to only climb from 11.1 million bbl/day this year to 11.8 million bpd in 2022. If oil producers do restrain their drilling and return surplus cash to shareholders, the U.S. oil supply-demand balance may become critically tight, forcing oil prices up to constrain demand. This situation would force the EIA to boost its current oil price forecast.

Redden also points to the International Energy Agency’s (IEA) net-zero economy study calling for ending all investment in new fossil fuels immediately (something that will not happen), as a directive to force oil companies to phase out production, as something different this time. At the same time, the IEA forecasts oil to remain a significant component of the world’s energy supply two decades from now. If Big Oil cuts its output, somebody else will have to step up to supply the oil. Encouraging them will require higher oil prices. How much higher is unknown, but prices are already ahead of where forecasters expected them to be this year when they prepared their forecasts late last year. What the forecasters missed was the speed of demand’s recovery with the reopening of economies after Covid-19. Mobility is hitting pre-pandemic levels, and now air traffic is climbing faster than airlines can handle.

A recent report on the physical oil market by RBC Capital Markets commodity analyst Michael Tran concluded: “For the first time in nearly a decade, we can argue that fundamental tailwinds are outnumbering the headwinds.” He cited tailwinds such as emerging Asian demand, dramatically tightening U.S. inventories, improving refinery crack spreads, the pace of India’s demand recovery, and a tightening WTI-Brent oil price spread. His conclusion is “the market remains in the early days of a strong, multiyear cycle.”

That does not mean oil prices will rise steadily, nor that they will breach the $100-bbl barrier, such as others are predicting, but prices are heading higher. Investors know, however, that when the fundamentals and the technical are positive, market moves can be dramatic. Both conditions seem to be in place. Hold on.

G. Allen Brooks is an energy analyst. In his over 50-year career in energy and investment, he has served as an energy security analyst, oil service company manager, and a member of the board of directors for several oilfield service companies.

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