A growing number of forecasts expect oil to return to $100 before the end of the year – a prospect that could put even more pressure on consumers and make it harder for central bankers to control inflation.
North American benchmark West Texas Intermediate crude has surged 30 percent since June 1 and this week is hovering around US$90 a barrel, its highest level since November last year. Global benchmark Brent crude was trading above US$93 on Wednesday.
In recent days, several a**lysts have revised their forecasts, estimating that triple-digit oil prices could now be on the cards for this fall. Bank of America, Citigroup and Goldman Sachs now all forecast Brent crude prices at US$100 before 2024, as does Chevron CEO Mike Wirth, according to a Bloomberg report.
“We’re thinking about this right now,” Andrew Botterill of Deloitte Canada said in an interview Wednesday in Calgary, where hundreds of oil and gas executives from around the world are gathered this week for the 24th World Petroleum Congress.
Botterill said he was currently working on Deloitte’s next report on oil price forecasts and was considering revising his own earlier projections upward.
“I can absolutely see it ($100 oil)…I absolutely think we’ll have moments,” Botterill said.
“I can list many more reasons why oil will go up (rather) than down.”
Last week, the International Energy Agency predicted that global oil demand is expected to reach 101.8 million barrels per day by the end of this year, driven by a resurgence in Chinese demand.
Additionally, Saudi Arabia and Russia recently agreed to extend their voluntary oil production cuts until the end of this year, leading to what the IEA calls a “substantial market deficit.”
“We have very firm global demand right now,” Botterill said.
“And as we move into winter, it’s still a peak consumption season, because you start to see the demand for heating… So that really makes us think about the extent to which we might see this (price) reinforce.”
Soaring oil prices in the coming months will likely make efforts by the Bank of Canada and other central bankers to control inflation more difficult.
According to Statistics Canada, Canada’s annual inflation rate has increased for two consecutive months, with rising gas and energy prices being the main driving factor.
Fuel price tracking website GasBuddy.com says the average gasoline price in Canada was $1.67 per liter on Wednesday, almost 15 cents higher than the 2022 average.
“Energy costs play an important role in all of our lives, and they are certainly an important part of calculating inflation in Canada,” Botterill said.
In fashion now
“With these firm prices, are we going to see that soften some of the demand? Will you and I lower our thermostat, drive a little less? I hope so, but it’s the big (global) demand that really continues to grow.
However, Canadian energy companies are well-positioned to benefit from higher prices, Lisa Baiton, president of the Canadian Association of Petroleum Producers, said Thursday.
“The outlook is really optimistic for the near future,” she said. “We’re seeing a lot of activity, mergers and acquisitions and consolidations. Companies are well capitalized and are willing to put their capital on the line.”
Many Canadian oil and gas companies have made record profits in 2022 due to soaring oil prices following the invasion of Ukraine. They have also been criticized by environmentalists for directing most of these profits towards shareholder returns, rather than investing in large emissions reduction projects.
But Baiton said Canadian companies are at a disadvantage compared to their U.S. counterparts, who have access to a series of aggressive government financial incentives for deploying technologies such as carbon capture and storage.
“Our members are ready to deploy capital into next-generation decarbonization projects. But again, capital is mobile: it will go where the rate of return is highest,” she said.
Greenpeace Canada’s Keith Stewart said that whether or not energy companies choose to invest in decarbonization projects, $100 worth of oil could actually accelerate the global energy transition.
“High oil prices are a double-edged sword for the oil industry, because while they generate big profits today, they also make alternatives such as energy efficiency, electric vehicles and heat pumps much more attractive,” Stewart said.
In a research note, Phil Skolnick, an a**lyst at Eight Capital, said that for the full year 2024, he continues to forecast an average WTI price of $86 per barrel and an average Brent price of $90 .
But he is also optimistic about oil prices for this fall, pointing out that OPEC’s forecast global demand for 2023 is a record 103 to 104 million barrels per day, even higher than the IEA forecast.
“If OPEC’s forecast proves accurate, the supply gap in the fourth quarter of 2023 could be the largest in more than a decade,” Skolnick wrote.
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