Energy Prospectus

One year ago today, the MAY20 NYMEX contract for WTI went negative to almost -$40/bbl.

Goldman Sachs sees US oil at $77 in 6 months

WTI oil was trading at around $64 on Tuesday, but analysts at Goldman Sachs said it could go as high as $77 within 6 months, a gain of 20%. The bank thinks Brent crude could rise 19% to $80 within 6 months, from around $67 on Tuesday.

The International Energy Agency last week increased its estimate of future demand once again. It has done repeatedly since the arrival of vaccines let countries start envisioning a return to normal life and all the economic activity and travel that entails.

Goldman is more bullish than most, however. Ehsan Khoman, head of emerging market research at Japanese bank MUFG, said in a note that "a vaccine-led, spring-accelerated global recovery will spur oil prices 'overshooting' in Q2."

MUFG predicts WTI oil will hit $74 in the second quarter, while Brent crude will top $77. But it then expects prices to fall quite sharply as the market works out a new stable price level, with WTI oil falling to $61 in the final 3 months of the year.

Morgan Stanley's base case is that WTI oil picks up to $67.50 by the third quarter before falling back to $62.50 by the end of the year.

This is why oil prices are going a lot higher this summer:
Bloomberg:
"The unprecedented oil inventory glut that amassed during the coronavirus pandemic is almost gone, underpinning a price recovery that’s rescuing producers but vexing consumers. Barely a fifth of the surplus that flooded into the storage tanks of developed economies when oil demand crashed last year remained as of February, according to the International Energy Agency. Since then, the lingering remnants have been whittled away as supplies hoarded at sea plunge and a key depot in South Africa is depleted."

"“Commercial oil inventories across the OECD are already back down to their five-year average,” said Ed Morse, head of commodities research at Citigroup Inc. “What’s left of the surplus is almost entirely concentrated in China, which has been building a permanent petroleum reserve.”

Demand exceeds current production by 1.5 to 2.0 million barrels per day, so above ground inventories are draining fast.

Read more: https://www.bloomberg.com/news/articles ... lmost-gone

As I have been telling you for several months in my weekly podcasts, OECD oil inventory levels are the PRIMARY DRIVER OF OIL PRICES.