Morgan Stanley, Barclays, Goldman Sach forecast ‘higher-for-longer’ oil prices
Some of the world’s biggest investment and energy intelligence firms are turning bullish on oil in the medium to long term as analysts bet crude supplies would not keep pace with fast-rising global demand.
Oil prices have hit multi-year highs in recent days. On Tuesday, West Texas Intermediate, the US benchmark, rose 2 percent to a high of $85.41 a barrel while Brent, the benchmark for Nigeria’s crude oil, rose sharply before falling to $85.99, a 0.5 percent rise for the day.
Even after the latest rally, prices still have headroom to rise further, many major investment banks believe.
For instance, Barclays Bank raised its 2022 oil price forecasts reasoning that continued recovery in demand could widen a ‘persistent’ supply shortfall.
The bank raised its 2022 Brent crude price forecast by $10 to $77 per barrel driven in part by “reduced confidence” for a revival of the US-Iran nuclear deal.
Expectations of tight supply, coupled with surging coal and gas prices, pushed oil prices higher for a sixth straight session on Tuesday, with Brent crude futures topping $80 a barrel while US crude rose to around $76.
“OPEC+ tapering would not plug the oil supply gap through at least Q1 2022 as demand recovery is likely to continue to outpace this, due partly to the limited capacity of some producers in the group to ramp up output,” Barclays said in a note.
Goldman Sachs, sees Brent hitting $90 per barrel at the end of this year, up from $80 expected earlier. The key driver of Goldman’s higher forecast is global oil demand recovery amid still a weaker supply response from non-OPEC+ oil producers.
The investment bank also sees sustained higher oil prices in the coming years.
“My advice to clients is that you want to stay long oil until you know where that equilibrium price is” that brings new supplies online, said Jeff Currie, head of commodities research at Goldman Sachs Group Inc. “We know it’s above these levels because we haven’t had a big uptick in capex and investment.”
Fundamentals warrant higher oil prices, and the bank’s forecast for the next several years is $85 a barrel, Damien Courvalin, Head of Energy Research & Senior Commodity Strategist at Goldman Sachs, told CNBC earlier this month.
American multinational investment bank, Morgan Stanley bumped what it calls its long-term forecast up by $10 to $70 this week.
The bank analysts predicted Brent would hit $95 in the first 2022 quarter, argue that as an investment in new production falls, ‘peak oil supply’ may actually arrive before peak demand.
The bank foresees global oil supply getting tighter, citing an average of 3 million barrels of crude per day of inventory draws in the last month, compared to 1.9 million barrels per day drawn in the preceding months of this year.
“These draws are high and suggest the market is more undersupplied than generally perceived,” the bank’s analysts Martijn Rats and Amy Sergeant said.
A Canada based global investment bank, RBC Capital Markets is also bullish on oil prices in the medium term. The bank projected the prospect of oil being at the start of a structural bull run.
“We maintain the view that we have held all year – that the oil market remains in the early days of a multi-year, structurally strong cycle,” RBC analyst Michael Tran said in a note in mid-October carried by Reuters.