Crude oil at $100/bbl may well have been out of sight for quite a while but is definitely not out of mind. In the last few days, future bets on oil above $100/bbl have seen a lot of takers. While the view may sound ultra-bullish given the supply and demand realities, but it does hammer the point that the new equilibrium may not be in the $50s/bbl, as was the case for a long time in the recent past.
Brent breached $67/bbl and WTI crossed $63/bbl earlier this week – reaching 12-month highs. The demand recovery, particularly from Asian economies has refueled optimism in the market. All eyes are now on the Opec Plus meeting next week, where Saudi Arabia and Russia are believed to be entering the meeting with contrasting positions.
This will not be the first time that an Opec Plus meeting starts with contrasting views, but if history is any guide, both Riyadh and Moscow would want to do whatever it takes to keep the union running. Saudi Arabia is apparently keener to continue with the supply restrictions, whereas Russia is believed to be asking for more relaxations, as prices have rallied north of late.
On the demand front, the recent Texas power outage episode has tinkered a lot of projections. Oil is back into the mix as far as future power generation mix and gradual withdrawal are concerned, till the time large scale base load alternatives are worked around. The likes of Goldman Sachs have revised the near-term oil price outlook by as much as $10/bbl for third quarter, to $75/bbl.
Major oil market watchers have predicted the global demand to return to pre-Covid levels by July 2021, which would be an opportunity for all the stuck up and held back supply to unwind. Shale producers have not been as aggressive either but may enter the foray if the recent bull rally gathers more momentum. How things have shaped up, it seems highly unlikely for oil price to be back to the lows of $50s/bbl that had almost became the new norm. It may be good news for the oil producers, those who import in bulk quantities may need to start rationing for what is coming.