Oil is likely to rise to $80 a barrel by the end of the year amid growing demand and lack of supply, according to
analysts led by Joyce Chang.
The energy price rebound is supported by a surge in demand as the world emerges from the pandemic and by “the unintended consequences of ESG [environmental, social and governance] and energy and transition policy,” the analysts write. Such policies “reduce fossil energy capacity faster than demand can switch to renewables.”
This week, investors worried about the opposite, as oil prices saw their strongest decline since March amid demand concerns and an OPEC deal to restore production. Brent oil futures fetch $69 a barrel.
Oil was up all year, but the spread of the Delta variant is now worrying investors and causing stocks around the world to decline. Meanwhile, OPEC members have agreed to restore production that kept the organization and its allies off the market.
A JPMorgan analysis of the major publicly traded oil producers found a post-pandemic capital expenditure shortfall of about $600 billion through 2030, “highlighting how poorly supply is positioned to meet demand,” JPMorgan analysts write. To attract continued investment, prices must remain above $70 a barrel.
The bank expects the oil price for Brent to rise above $80/barrel by the end of the year. The year-end target for 2022 is $62/barrel. But the bank warned that “there is a risk of oil prices skyrocketing as the oil and gas industry reaches a tipping point due to chronic underinvestment.”
The bank advised investors to add exposure to commodities and commodity stocks to hedge the risk of continued inflation.
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