Less than effective Western sanctions against major oil suppliers, recession fears and rising interest rates have helped keep crude prices low this year. But Jeff Currie, head of global commodities research at Goldman Sachswarned that the lull will not last Thursday.
“Fundamentals turn the corner,” he said. said CNBC, arguing that oil demand is rebounding as recession fears fade. Currie now expects prices of Brent crude oil, the international benchmark, to jump about 16% from current levels to hit $86 a barrel by the end of the year. This could lead to a rebound in U.S. retail gasoline prices, which have fallen 27% over the past year from a national average of $4.86 per gallon to less than 3 $.60, depending on American Automobile Associationand has played a major role in slowing inflation from over 8% last summer to its current rate of around 4%.
Currie argued that investors were ‘pricing in a downside scenario’ for oil and gasoline earlier this year, but now many are acknowledging ‘there isn’t much evidence of a recession’ to sustain demand. at a low level. “Almost every other commodity has turned the corner,” he said. “All seem to have shredded concerns around the recession.”
About him, after falling for several months, natural gas prices rose 15% this month, coal prices jumped 24% over the same period, and copper And wheat prices are now 5% and 8% below their May lows, respectively.
However, S&P Global Dow Jones Commodities Index, a broad measure of global commodity futures prices, is still down nearly 17% year-over-year. And Brent crude oil prices have also fallen 36% since this time last year, from over $116 a barrel to under $75. But Currie said Thursday he believed the current weakness would not last.
He noted that many petrochemical companies that relied on crude to produce record amounts of plastics during the pandemic are now seeing their business slow. “It’s time to come back,” he said. “This weakness is weighing on WTI and Brent (crude oil) prices, as well as some refinery outages…but this should be temporary.”
The supply and demand dynamics driving oil prices signal a bullish scenario, according to the veteran commodities analyst, who pointed to falling crude stockpiling levels in the United States.
Crude oil inventories in the United States fell by 11 million barrels this week and about six million barrels last week in a sign the offer tightens. And the Biden administration will have to start filling the Strategic Petroleum Reserve (SPR) after releasing 180 million barrels of oil from the network of underground salt caves in Louisiana and Texas throughout the pandemic in a bid to bring down retail gasoline prices. This should help keep oil demand high throughout the year, according to Currie.
For more than a year now, Currie has also argued that a lack of spending on oil production over the past decade has helped kick off a “commodities supercycle” that will eventually force prices higher in the long run. term. These periods of high and sustained commodity prices that typically last 15 to 20 years have been a common theme throughout history.
However, the veteran commodities analyst has also revised his bullish outlook several times over the past year. In November, he argued that oil prices could hit $115 a barrel in 2023 due to a tightening of supply. But in February, he backtracked on that goal, arguing $100 per barrel was more reasonable amid recession fears. Then, earlier this month, it cut its outlook again to the current $86 a barrel, saying Bloomberg that while he still believes in the long-term supercycle thesis, the short-term upside is not as sharp amid increases in oil supply from countries facing the inefficient West, notably Russia, Iran and Venezuela.
Now Currie says he’s “sticking” to that year-end price target of $86 a barrel for Brent Crude, arguing that the commodity supercycle is inevitable – and it isn’t. only.
Wells Fargo’s head of real assets strategy, John LaForge, has long argued that the “commodity bull supercycle” began in March 2020 and is expected to keep oil prices high for years. “Super-cycles are like black holes,” LaForge wrote in a May note to clients. “Escaping the gravity of a super-cycle is difficult for the individual product.”