Saturday, April 17, 2021

Oil Supercycle Starting in 2021?

The Financial Times (Feb 15) has an argument about oil heading into a supercycle:

"We’re going to be short of oil before we don’t need it in the years to come,” JPMorgan’s head of oil and gas, Christyan Malek, told clients on a conference call last week. “We could see oil overshoot towards, or even above, $100 a barrel.”

Veteran Goldman Sachs analyst Jeffrey Currie, who was a key voice in oil’s last supercycle between 2003 and 2014, told the Financial Times he believes there are real risks that oil trades in the $80 range “or even higher this year”.

The article doesn't appear to indicate the time horizon that Christyan Malek puts on his $100 a barrel target. Yet Jeffrey Currie targets this year, 2021. If he is correct about the price target, I wouldn't say it is due to a supercycle. I would say it would be due to OPEC + holding oil off that market. Business Standard (Dec 4) reported that back in April 2020, OPEC + agreed to hold 9.7 mb/d off the market. In December, the cuts were reduced to 7.2 mb/d. Then Saudi Arabia agreed to take an additional 1 mb/d off the market until March. Now, per Forbes (Apr 1), 350,000 b/d will be added back in May and June. This will increase to 450,000 b/d in July. Saudi Arabia will also begin to add back production. By July, OPEC + will still be holding back 6 mb/d from the market plus whatever Saudi Arabia might still hold off the market. 

Essentially, there is still a lot of oil off the market right now. I would bet that if oil hits $80, it is due to oil being kept off the market. I've written about the potential for significant gaps between supply and demand, but those forecasts seem to target 2025. So I'm not against the idea of a supercycle, just don't see it as starting in 2021.

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