Crude oil running hot! Norbert Rücker of Julius Baer sees it hitting $100/bbl briefly

Crude oil prices rose for a fourth day on Wednesday to inch close to $90 a barrel after a fire on a pipeline from Iraq to Turkey briefly stopped flows.

The oil market seems caught in a period of nervousness with tight storage and supply disruptions fuelling fears and boosting the market mood. Pic: Reuters

Crude oil prices rose for a fourth day on Wednesday to inch close to $90 a barrel after a fire on a pipeline from Iraq to Turkey briefly stopped flows.

The oil market seems caught in a period of nervousness with tight storage and supply disruptions fuelling fears and boosting the market mood.

See Zee Business Live TV Streaming Below:

TRENDING NOW

“While this setting could bring further price spikes in the near term, we see the fundamental backdrop changing longer term. The oil market seems in a transition phase, where output growth exceeds demand growth, as the post-pandemic recovery has largely run its course,” Norbert Rücker, Head Economics and Next Generation Research, Julius Baer, said.

Usually, such a transition was not a smooth ride for oil prices not least due to political wild cards. Today’s supplies are largely artificially not structurally tight.

The oil market seems to be running hot. Tight storage levels, following a long period of strong economic recovery and artificially constrained supplies, build the basis for today’s nervousness.

Oil prices have surged towards USD 90 per barrel, as the market mood brightens and supply fears swell, triggered by infrastructure attacks and other incidents over the past days in the Middle East and a swelling geopolitical risk premium.

“These frothy dynamics could last over the coming weeks and oil prices remain at risk of further spikes, with a possibility of moving towards USD 100 per barrel just for the sake of it,” added Rücker.

He further added that such nervousness tends to last weeks rather than months and the mood should eventually cool. Looking further ahead, the fundamental support to oil prices should wane.

“We see the market in a transition phase where storage shifts from tightening towards easing, as supply growth exceeds demand growth,” he added.

In North America and Europe, oil demand is back at cruising speed i.e. stagnant. In China, with the coal supply and energy crunch largely having eased, and the real estate sector under pressure, oil use looks unlikely to swell much.

Meanwhile, supply continues to grow incrementally given the healthy levels of shale drilling activity and ongoing easing of the petro-nations output restrictions.

Some buyers likely also turn to Iran and Venezuela to increase imports of their sanctioned oil via opaque channels.

High oil prices are also an element of common ground concerning the Iran nuclear talks. Based on these observations, we raise our forecasts by USD 2.5 per barrel to reflect the reality of the past months price surge.

(Disclaimer: The views/suggestions/advices expressed here in this article is solely by investment experts. Zee Business suggests its readers to consult with their investment advisers before making any financial decision.)

TAGS: