- The price of oil could surge above $US100 ($AU138) per barrel for the first time since 2014, according to Bank of America.
- This could spark inflation that will drive the “next macro hurricane.”
- The analysts laid out three reasons for the possible price surge.
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Brent crude, the global benchmark oil price, could surge above $US100 ($AU138) per barrel for the first time since 2014, in the event of another cold winter, according to a note by Bank of America Friday.
And tightness in the global natural gas market could put more upward pressure on crude as high natgas prices encourage switching to oil.
The price of Brent oil rose 0.27%, to $US75.23 ($AU104) per barrel as of 11:45 a.m. ET Friday, while West Texas Intermediate crude oil rose 0.42%, to $US78.64 ($AU109) per barrel.
Higher oil prices could spark inflation that will drive the “next macro hurricane,” analysts led by Francisco Blanch said. There could be three reasons for a jump:
- gas-to-oil substitution of up to 2 million barrels per day due to high gas prices,
- rise in crude demand of up to half a million barrels per day due to a cold winter
- jump in aviation consumption of up to 500,000 barrels per day in the first quarter of 2022 due to an air travel boom as the economy reopens.
“If all these factors come together, oil prices could spike and lead to a second round of inflationary pressures around the world,” the analysts said. “Put differently, we may just be one storm away from the next macro hurricane.”
The low supply paired with consumers flush with stimulus cash have led to the tightening of the global commodities market, the analysts said. Thus far, the run-up in energy and goods prices has pushed inflation past 5% in the last few months.
Beyond a winter storm and current policies, BofA said a common theme is simply the underinvestment in commodities due to a lack of investor appetite for conventional energy.
“Note that these tighter physical markets have appeared just as monetary and fiscal policy is stretched to the limit,” the analysts said. “Investors are simply wary of the poor investment returns of the past decade and green climate policies of the upcoming one.”
Brent crude topped $US80 ($AU111) a barrel earlier this week but has pulled back on expectations that OPEC and its allies consider a boost in production by 400,000 barrels per day at their meeting next week.
Meanwhile, star stock picker Cathie Wood, founder of Ark Invest, took to Twitter on Thursday to express long-term bearishness on oil.
“The rise in oil prices this year is a function more of supply than demand,” she said in a tweet. “At the turn of the 20th century, whale oil faced the same fate and whale oil prices fluctuated dramatically. If @ARKInvest‘s research is correct, oil prices will suffer the same fate as whale oil prices.”