Providing some bullish support for the oil cash, in his latest weekly note, Bank of America’s energy analyst Fernando Blanch writes that even if the world goes into recession, Brent oil could average more than $75 per barrel next year. Here is some more from his summary:
As Europe targets Russian oil export reductions, the energy supply side needs more than just a price fix. Investors are looking to curb exposure to the energy sector too on ESG concerns. Also, US shale supply has become much less sensitive to price. What does this mean for balances and prices?
If Russian oil supply does not drop below 10mn b/d, global oil demand could grow by 1.7mn b/d in 2023.
Having averaged $104/bbl this year, BofA stills see Brent at $102/bbl in 2022 and 2023 on average, with a potential spike to $150/bbl if European sanctions push Russian oil production below9 million barrels per day.
Yet the market does not seem to be pricing in a decade-long Russian supply crisis, as long dated oil prices have stayed firmly anchored in our long term oil price band of $60 to $80per barrel.
A similarly bullish message, yet one where there was much more book talking, came from Exxon Mobil, whose CEO said that global oil markets may remain tight for another three to five years largely because of a lack of investment since the pandemic began.
Chief Executive Darren Woods said it’ll take time for oil firms to “catch up” on the investments needed to ensure there’s enough supply.
Woods was speaking at the Economic Forum in Qatar, which is among the world’s biggest exporters of liquefied natural gas and one of few nations that can substantially replace Russian gas supplies to Europe. Firms including ConocoPhillips are investing in a $29 billion project to boost Doha’s exports. On Tuesday it emerged that Exxon is also one of the bidders and Qatari Energy Minister Saad Al-Kaabi, speaking alongside Woods, said the US firm would get a stake. The project is one of the largest in the gas industry and state-controlled Qatar Energy is scheduled to formally announce a deal with Exxon later on Tuesday.
Incidentally, Exxon got some more good news today when Credit Suisse upgraded the stock to a buy with a $125 price target, with CS analyst Manav Gupta writing that Exxon “always believed that the world will need fossil fuels for much longer and in the medium term demand for oil and gas will be increasing not contracting” and adding that “while some of XOM’s peers have been selling refining assets at the bottom of the cycle at distressed valuations, XOM has actually been investing in its refining assets,” Gupta wrote. Notably, the CS analyst also sees XOM reducing net debt and being in net cash position by 2024.
Woods message was also echoed by Russell Hardy, the CEO of the world’s largest independent oil merchant, Vitol; he too believes that oil prices will remain high because the market can’t see where additional supply is coming from to balance demand, although he noted that high oil prices are starting to curb demand “at the edges” (many others, such as the gas buddy guy, disagree, failing to see any slowdown in demand despite record high gas prices).
Finally, and ensuring that gas prices aren’t going lower any time soon, in a world where refining capacity is approaching the lowest in years, China’s state-run refiners again trimmed operating rates to 70.8% in the week ended June 17, from 71.3% the prior week according to Citic, which also noted that run rates for teapots edged higher to 65.6% from 64.4%.✪