Oil prices could soar to $100 per barrel within months, as supplies tighten and fears of the effect of the Omicron variant on demand begin to recede, according to OANDA.
Analyst Jeffrey Halley said: “Assuming China doesn’t suffer a sharp slowdown, that Omicron actually becomes omi-gone, and with OPEC+’s ability to raise production clearly limited, I see no reason why Brent crude cannot move towards $100 in the first quarter, possibly sooner.”
The optimistic forecast follows both major oil benchmarks consolidating yesterday’s gains, with prices hitting two-month highs on Wednesday.
Brent Crude futures are up 0.54 per cent to $84.17 while WTI Crude futures have gained over a per cent, rising to $82.05.
After a sustained period of prices wallowing in the mid-seventies following the initial emergence of the new contagious variant, both contracts are now set for their sixth session of gains out of eight.
Major economies such as the US, Germany, UK and France have so far avoided a return to full-scale lockdowns, with hospitalisations not rising in tandem with soaring cases.
While airports such as Heathrow have called for an end to Covid-19 testing following declining numbers of passengers, analysts are bullish about demand for air travel rising again this year and consequently maintaining fuel demand.
In its latest research, Morgan Stanley was also upbeat about oil prices.
The investment group said: “On current trends, the oil market is heading for a ‘triple deficit’ of simultaneously low inventories, low spare capacity and low investment later this year. We expect this will drive Brent Crude to $90 per barrel in the second half of the year.”
Morgan Stanley also argues the market will benefit from both rising interest rates and a rotation towards value, which are tailwinds for energy majors such as Shell, BP, Eni, TotalEnergy and Equinor.
This outlook is supported by the latest developments Stateside, with Federal Reserve Chairman Jerome Powell announcing on Tuesday that the US economy should weather the current COVID-19 surge with only “short-lived” impacts.
He revealed the world’s biggest oil consumer was preparing for the start of tighter monetary policy, while its weaker currency is making dollar-denominated oil contracts cheaper for holders of other currencies.l
This is increasing activity in the market.
Brent contracts are also showing growing backwardation with front-month delivery around $4.20 more expensive than delivery in six months’ time, indicating tight supply in the market and potential shortages in the future.
In a sign of things to come, US crude stocks fell by 1.1m barrels last week according to American Petroleum Institute data cited by Reuters.
Meanwhile, despite OPEC+ committing to raising oil production by 400,000 barrels per day each month, many producers have so far not hit their targets, while continued sanctions on Iran also pin back exports with no sign of an agreement with Washington being reached soon.