The decrease in crude oil production by Russia and the Organization of the Petroleum Exporting Nations has resulted in a boost in Brent crude prices to about $93 per barrel. Christyan Malek, head of EMEA energy equity research at JPMorgan, fears it's just the beginning of an era of higher prices.
''s going to be a very volatile supercycle,'' the energy guru told Bloomberg Friday when discussing what to expect next for the oil market.
As more people on Wall Street believe, Malek thinks a lack of investment in new oil production, combined with production cuts from OPEC and other top oil producers, will result in higher crude prices for years to come.
Although $100 oil is a significant psychological milestone, inflation isn't what it used to be. A barrel that currently costs $100 is the equivalent in real dollars to a $71 barrel in 2010 and a $56 barrel in 2000.
Although U.S. and European recession fears would normally lead oil prices to fall as investors anticipated fading consumer demand, crude oil prices have surged in 2023 due to this lack of new oil production and production cuts from the world's largest producers.
The 13 member nations of OPEC, which produce around 80% of all crude, are now producing less oil than at any time since August 2021. By the end of the year, Saudi Arabia and Russia both announced similar plans to decrease their oil production by 1 million and 300,000 barrels per day. With a temporary ban on gasoline and diesel exports, Russian officials have introduced a temporary ban on exports to all countries outside of four ex-Soviet states in an effort to stabilize their domestic fuel market.
The good news, Malek said, is that although oil prices may increase to $100 per barrel, it's unlikely they will soar much higher than that because OPEC is not willing to miss out on sales because of fading demand. When oil prices are too high, they can't keep up with the rising costs, leading to a decrease in demand for the product.
While Mr. Malek is not the only energy analyst on Wall Street worried about the rise in oil prices, he's not the only energy analyst concerned about rising oil prices. Goldman Sachs' commodities analysts are also expecting crude prices to surge to $100 per barrel.
Bank of America's head of global commodities, Francisco Blanch, believes that oil prices are set to rise--and for similar reasons to Struyven and Malek.
We now believe Brent prices could surge past $100 [per barrel] before 2024, Blanch wrote in a Sept. 12 note to clients.
Despite the country's economic hardships, Blanch said, oil demand has been particularly strong in China. China's overall exports are falling due to a slower than expected post-pandemic recovery, a shifting global supply chains, a property crisis, and sky-high youth unemployment. The United States' energy imports are rising as the nation shifts towards a more consumer-driven economic model.
Blanch, a professor of economics, explained.