The rally in crude oil futures has stalled since June, but could resume again and even hit $100 depending how cold it gets, according to Bank of America analysts led by Francisco Blanch.
Front-month crude-oil futures
rose as high as $75 per barrel in June, but since then have fallen as low as the low 60s, and more recently are trading around $70 a barrel.
The Bank of America analysts say that increased production from Saudi Arabia and other OPEC+ members have offset improving demand. “Notwithstanding the occasional oil price war, OPEC+ is acting again to stabilize oil prices as it has done historically,” said the analysts.
But as natural gas
and other energy prices rise, cold weather could prompt switching into oil, driving up crude. In Asia, there’s an estimated 1.5 million barrels per day of unused fuel oil power generation capacity, and Europe is home to nearly 300,000 barrels a day of fuel oil power generation capacity. The U.S. also has “fair amount” of capacity to switch, the analysts say.
Besides power plants, switching may be possible at industrial operations, and cold weather could prompt more demand for propane, heating oil and kerosene, particularly in Japan and the U.S.
Separately, commodity strategists at Goldman Sachs say oil could “rally significantly,” particularly if a deal on nuclear capability with Iran falls apart.
Pointing to disappointing supply additions from OPEC+ producers, production in non-OPEC countries weighed down by maintenance and project delays, and Hurricane Ida’s impact on U.S. production, the Goldman analysts say the market is in deficit, with the only remaining inventory surplus relative to pre-COVID levels in China. They reiterated an $80 price target for the fourth quarter, with upside risks to the first half of 2022.