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Could oil hit $100 again? Here’s what the analysts think

The silhouette of oil pumps on a beautiful sunset sky with sun setting in between them.Siberia. Oil and gas production
Oil prices may soar after top crude producers announced plans to slash production from May until the end of the year. Photo: Getty (Olga Rolenko via Getty Images)

A number of analysts have highlighted why there are “sufficient” reasons to anticipate higher oil prices after top crude producers announced plans to slash production from May until the end of the year.

Brent crude was up 4.99% to $81.80 a barrel on Monday, while US West Texas Intermediate (CL=F) climbed 6.59% to $80.66.

Reasons to be bullish

Independent macro analyst Piero Cingari said that oil price sensitivity to supply changes is generally $20 per barrel for every million barrels of production shift, assuming demand stays unchanged.

“There are currently sufficient reasons to anticipate higher oil prices in the near future, given that China is reopening and that US SPR inventories are at their lowest levels in forty years, with rumours mounting about the need to refill them.

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“There has also been a significant unwinding of speculators' bullish bets in oil derivatives over the last six months, and a short squeeze could now occur. I don't rule out the potential of WTI prices rising over $90, or even around $95, in the near future.”

Read more: The banking crisis hammered crude oil prices so much that OPEC stepped in with a shock 1 million-barrel-a-day production cut

Cingari said central banks will now be compelled to confront a resurgence of inflationary pressures from energy costs.

“It's a nightmare for them. However, to halt oil price advances in the next few months, a considerably stronger repricing in Fed rate hikes and increased recession risks are needed.”

Mid-summer price surge?

Meanwhile, Tamas Varga, an analyst at PVM Oil Associates, said that if the OPEC cuts are fully implemented then the oil balance should flip into deficit in the second quarter and further deepen in the second half of the year.

“Effectively setting a floor of $80 basis Brent (BZ=F) and sending the price over $90/bbl when demand growth starts accelerating after June,” he added.

Goldman Sachs (GS) also raised its Brent forecast after the OPEC+ announcement — from $90 to $95 a barrel by the end of the year. The bank has also projected Brent to hit $100 by the end of 2024.

Bearish factors at play

Rising interest rates and looming recessions have helped cap soaring oil prices as investors consider the resulting impact on demand.

Osama Rizvi, an oil analyst at Primary Vision, is on the bearish side of the fence — and doesn’t think crude prices will reach $100 a barrel anytime soon.

“I remain bearish on oil prices. The markets are reading the production cuts in the wrong way. What OPEC+ is trying to say is that it does not see any prospects for economic growth or recovery and therefore expects oil demand to suffer.

“Before oil prices reach a level that it starts to hurt its budgets (as the break even for many OPEC producers remains between $60 -$70) it is adjusting its production according to the demand and supply dynamic of the markets.”

Hurricane season and SPR release

Fernando C Hernandez, energy analyst and principal at Hernandez Analytica, said the hurricane season, which starts in June, could also amplify-upward oil price action in the coming months.

However, he said it will be key to see if the US Strategic Petroleum Reserve (SPR) will continue to be utilised, as it was in 2022, as a counterbalance to help bring oil prices down.

“We must analyse the US’ Energy Information Administration most recent data, which shows that the SPR is down by 196,743,000 barrels on a year-over-year basis, and presently stands at 371,579,000 barrels. Therefore, it will be a challenging decision for the US to make (in terms of 2023 releases), being that the SPR has historically played a crucial role (in providing support) when the US’ infrastructure is impacted during hurricane season.”

Read more: Marketmind: Oil spike a black mark for inflation, consumer demand

For example, hurricane Ida affected the US in August 2021 and caused oil prices to increase by 10%, as the US’ Gulf Coast refineries were impacted, Hernandez highlighted.

“Importantly, the US continues to lead the world in refinery throughput. Therefore, a hurricane impacting this region would cause global reverberations, including a scenario whereby oil prices reach $100,” he added.

Watch: Oil prices soar after OPEC+ nations' surprise cut

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