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Top oil forecasters warn oil prices could hit $100/b this year

Highlights

Long-cycle investment is dead, says Goldman's Currie

Goldman, Trafigura, RBC highlight $100/b risk

Spare capacity, US shale offer near-term solace, analysts

The oil market could return $100/b this year, top oil forecasters said June 15, but the consensus is for OPEC+ to provide a ceiling to prices with greater risks of supply shortages and potential price shocks in the years ahead.

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Goldman Sachs' head of commodity research Jeff Currie emphatically entertained the idea of triple digit crude at the S&P Global Platts GEPEC conference, while warning the end of investment in long-term crude projects and the ripple effect that could have on prices further out.

While it is not Goldman's central scenario, which continues to predict $80/b oil, Currie said he "would put a non-trivial probability on it between now and end of this year" when asked if it was possible.

The commodity super-cycle advocate added that near-term the markets give a 10% probability it is going to go over $100/b between now and the end of 2021.

Currie was downbeat on the prospects for oil investment further out too, noting that everyone in the oil industry is looking to get their money back at higher prices rather than return to long-term investments.

"Long-cycle production is dead," Currie told the panel GEPEC event, but he was more optimistic on US shale, Middle East and Russia once the returns look better. "The bottom line is Netflix is still a much better business model than any oil and gas investment at this point right now," Currie said, adding "you get those returns on oil and gas investments high enough then capital will think about it."

Currie's views on prices were supported by separate comments from the head of commodity trader Trafigura, Jeremy Weir, at the FT Commodities Global Summit.

Asked if oil could hit $100/b due to potential supply constraints in the coming years as a result of a spending cutback on fossil fuels, Weir said: "There is a chance for a while to get up to those numbers because you need higher prices to incentivize [the production]... We need to attract capital in the business and there is a likelihood that the capital availability and the cost of capital for the industry will be higher."

Russell Hardy, CEO of commodity trader Vitol, also warned that the world faces a potential global oil supply shortage over the coming decade as the pullback from fossil fuels projects by parts of the industry creates a gap with expected demand.

Speaking at the FT summit, he said oil prices would stay in the current $70-$80/b range for the remainder of 2021 as OPEC+ producers maintain their production discipline to accommodate the expected return of Iranian oil exports to the market.

Oil price caution

Meanwhile, Helima Croft, head of commodity strategy at RBC Capital Markets, said $100/b would only happen if there was a seismic oil market shock. "If we have a supply shock or a country's production goes offline... I think you need improving demand plus some type of supply shock to the system in terms of a geopolitical outage" to drive prices to triple digits.

Michael Cohen, chief US economist at BP, who shared the panel with Croft and Currie at GEPEC, said $100/b was "unlikely" given the amount of spare capacity Saudi Arabia and other parts of OPEC have and the production they are likely to bring on in the months ahead.

Cohen was more upbeat on oil investments than Currie, seeing higher prices acting as an incentive, but did caveat that incremental supply would be less than previously seen.

"In a rising price environment and as the consensus view comes around to this idea that we may be in short supply as demand rebounds in the next year and a half then these projects [with final investment decisions] will indeed get the go-ahead simply because of their optionality and shorter cycle nature than the projects that moved ahead in the past five to seven years."

Cohen added that "consensus expectations are still for a pretty sanguine response for US tight oil as a response to higher prices," which would give "OPEC solace that it can drive the price recovery from here as demand rebalances and as some of the other supply uncertainties move into the back, and into the rearview mirror."

The head of the International Energy Agency's of oil markets division, Toril Bosoni, was also circumspect on oil price rises. "I mean even for us in the near term, even though inventories are coming down they are relatively heathy as OPEC is sitting on 8 million b/d of spare capacity, so it is not like there is a shortage of oil on the market."

"It would take many years before the market would get that tight," she told the GEPEC event.

S&P Global Platts Analytics expects Brent will hold in the $70s during the summer but will fall back into the mid/lower $60s going into 2022.