Although demand is still low, JPMorgan still believes that the ultra bullish oil cycle is on the horizon. A large amount of the offer has been withdrawn without an internet connection, and the industry may face a major problem in attracting future capital.
“The truth is that the chances of oil reaching $ 100 at this point are higher than they were three months ago,” said JPMorgan, Christian Malik, head of oil and gas research in Europe, the Middle East and Africa.
Looming deficit indicates prices will “go to the surface”
For years, the world had more oil than it needed. This influx caused the storage tanks to be filled to such an extent that Crude Oil became negative in April.
So the producers of oil reduced supply. But now, the booming oil industry can swing largely in the opposite direction.
According to a JPMorgan report published on June 12, oversold oil markets will turn into a “basic supply deficit” beginning in 2022. The most likely scenario is that Brent rises to $ 60 a barrel to stimulate higher production.
The report did not clarify the target price target for the bullish scenario – but Malik told CNN Business that the JPMorgan’s $ 190 bullish call from March still persists. In fact, he thinks it’s more likely now.
Malik, who has been declining since 2013, pointed to the very large supply and demand deficit that is expected to emerge in 2022 and could reach 6.8 million barrels per day by 2025 – unless OPEC and others pump much.
“The deficit speaks for itself. This means that oil prices will reach the highest ceiling,” he said. “Do we think they are sustainable? No. But can they reach those levels? Yes.”
BP also said it plans to depreciate its assets – including unutilized oil and gas reserves – by up to $ 17.5 billion.
On the contrary, to the extent that Malik, owner of JP Morgan, said the depreciation of earnings and bleak expectations is “one of the most bullish developments” he has seen.
This is because oil companies must spend heavily only to maintain production, let alone increase it. If they do nothing, production will naturally decrease.
The weak expectations of BP indicate that fewer long-term oil projects will lead to a cut. This, in turn, will keep supply low – even as demand rises.
“It confirms our point of view,” Malik said.
Oil spending can drop to 15-year lows
Between 2015 and 2020, more than 50 new global oil projects were approved, according to JPMorgan. However, the bank estimates that only five projects called “green fields” will appear online in the next five years.
Global upstream investments are expected to drop to a 15-year low of $ 383 billion in 2020, according to a recent Rystad Energy report.
These cuts will make “maintaining current production” more difficult and will affect the “stability” of supply in the long run, Restaad said.
Malik said “they will not drown the market” for this reason.
Climate change factor
However, rock drillers cannot count on the unlimited flow of funds from Wall Street. Investors are calling for holes in their potential to be created after years of burning through piles of cash.
Malik said: “The rocky child is growing. He is still there, but he is maturing.”
Capital restraint is increasing due to growing concerns about climate change and the rise of socially responsible investment. An increasing number of investors simply do not want to touch oil stocks.
The combination of price collapse, capital flight, and climate change can limit the ability of the oil industry to attract the necessary money – only when it is most needed.
The past few months have shown how difficult it is to predict the future. While the price of Crude Oil may seem like $ 190 unattainable, the Negative Oil Price is $ 40.