- Oil prices have jumped this year amid a surge in global demand and limited supply increases from OPEC+.
- Some experts project the commodity could reach $US100 ($AU136) per barrel – but Mohamed El-Erian is not one of them.
- “Demand is robust today but will it be robust in six months’ time? There are really big questions in terms of demand destruction,” he told CNBC.
Oil prices have jumped this year, and some experts project the commodity could reach $US100 ($AU136) per barrel – but Mohamed El-Erian is not one of them.
For the chief economic adviser of Allianz, oil is unlikely to hit the three-digit figure as a probable slide in demand will keep a lid on prices even as supply is squeezed.
“If you look at what is happening on the demand side, there you get some questions,” he told CNBC Monday. “Demand is robust today but will it be robust in six months’ time? There are really big questions in terms of demand destruction – people buying less because prices are higher – and in terms of whether policy becomes contractionary or not.”
While El-Erian acknowledged oil prices spiked to unexpected levels this year, he has yet to seriously consider the $US100 ($AU136)-per-barrel range.
“If you were to focus only on the supply side, you could get to oil at $US100 ($AU136), because there has been underinvestment in the industry in general, and demand will stay robust,” he told CNBC during the ADIPEC energy conference in Abu Dhabi.
Oil prices recently hit the highest levels in seven years as major economies around the world simultaneously restarted after the devastation brought about by the pandemic lockdown.
Prices also got a boost from OPEC+, which continues to keep its existing schedule of gradual hikes in oil production, ignoring growing calls for opening the taps at a faster rate to bring down prices.
Bank of America in October said Brent crude, the global benchmark oil price, could surge above $US100 ($AU136) per barrel for the first time since 2014 in the event of another cold winter, among other factors.
But even if El-Erian, who is also president of Queens’ College, Cambridge University, thinks the surge in oil prices will threaten global economic recovery, it doesn’t pose as much risk compared to the “miscalculation in inflation,” he told CNBC.
The economist in November criticized the Federal Reserve’s long-standing narrative of transitory inflation as one of the worst calls ever made.