During the Asian session on Tuesday, WTI Crude Oil futures expanded to 2% at one point, touching a high of $63/barrel; Brent crude oil futures also expanded to 2%. However, the two oils started to fall in the afternoon, and there may be some profit-taking discs in the market.
The oil market has been quite hot recently, and trading has been very brisk. The Intercontinental Exchange said open interest in Brent crude oil futures reached a record 2.76 million contracts on Feb. 19; the total open interest in futures on Feb. 19 was a record high of 46.9 million contracts.
Damaged U.S. oil supplies are still providing support for higher oil prices. U.S. oil companies shut down 2 million bpd-4 million bpd of oil capacity as Texas and other oil-producing states were hit by severe cold, and the unusually cold weather may have damaged facilities, which could make capacity shutdowns last longer than expected.
Shale oil producers in the region in question may take at least two weeks to fully resume normal output, sources said, as damage assessments and power outages slowed their recovery.
Golden 10 reported yesterday that Goldman Sachs raised its Brent oil price estimates, raising its forecast for Brent crude prices from $55, $60, $65 and $65 per barrel to $60, $70, $75 and $70 per barrel for 2021 through the fourth quarter, respectively. Goldman Sachs Equity Research expects Brent crude oil prices to reach $69/bbl in 2021, compared with a previous estimate of $61/bbl. Brent crude oil prices are expected to reach $70/bbl in 2022, compared to a previous estimate of $65/bbl.
Notably, Goldman Sachs raised its oil price estimates again today. Goldman Sachs raised its 2021 and 2022 WTI crude oil price estimates to $66/bbl and $67/bbl, respectively, compared to $58.50/bbl and $62/bbl previously. Goldman Sachs expects U.S. production to increase significantly in 2022, but not to return to its previous peak growth levels.
Not only Goldman Sachs, but also Bank of America is very optimistic about the oil market. Bank of America analysts wrote in a report that oil prices could top out at $70 this year. The bank raised its 2021 Brent crude oil price forecast to $60 from the previous $50 and noted that OPEC extended production cuts into the first quarter, reducing market supply by 180 million barrels; cold weather disruptions in the U.S. state of Texas will reduce global oil inventories by an additional 50 million barrels.
Bank of America also noted that oil prices will average between $50-$70 per barrel through 2026, although they could soar to $100 per barrel in the meantime due to global monetary and fiscal stimulus and improved oil fundamentals.
Oil company Socar Trading has joined the bullish market for oil prices. The company expects oil prices to touch $80 per barrel this year as it believes crude oil demand will pick up and producers will not be able to supply enough crude immediately.
Hayal Ahmadzada, chief trading officer at Socar trading, said that the surplus oil stored in 2020 in response to the outbreak will be completely depleted by this summer. Meanwhile, soaring steel prices for building maintenance pipelines, wells and fittings are raising capital costs for producers, which in turn is preventing the already struggling oil industry from boosting production as demand recovers.
In an interview, Hayal Ahmadzada, an industry veteran, said.
“I wouldn’t be surprised if oil prices rise to $80 a barrel by this summer or the end of the year, or above $100 a barrel in the next year and a half to two years.”
He also revealed a figure that his company had sold all of the oil it had stored during the Epidemic, which was as much as 15 million barrels in stock.
Hayal Ahmadzada also offered another perspective on why oil supply may not be able to keep up with the recovery in demand.
He notes that soaring steel prices are making it difficult for oil service contractors to build pipelines, wells and other infrastructure at original costs and making it difficult for oil producers to resume production on Time and on budget. As a result, even if crude demand picks up as countries lift embargoes and other restrictions, the supply response can’t keep up.
Ahmadzada expects OPEC and its ally Russia to gradually ease production cuts and resume full crude extraction activity soon. But even then, he said, supply is not nearly enough.
To add insult to injury, banks are imposing higher lending rates on oil producers, leading to rising borrowing costs for oil producers.
Even though Saudi Arabia and Texas are also producing, there are still fears of a supply shortage in 12 months, which would push oil prices up quickly.
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