After oil’s tremendous run, experts see 3 scenarios for its future
Over the past few days, major oil producers including Saudi Arabia, Russia and United Arab Emirates failed to agree on terms to increase oil output.
- This initially sent oil prices/stocks soaring. But investors realized this could be bad for oil prices — sending prices back down.
What’s the big deal? Oil prices rose non-stop this year with analysts forecasting prices to hit $100/barrel from the current $75. The world is opening back up and demand is increasing by the day.
On the supply side, oil producers kept production low during the pandemic. With global oil inventories dropping each week, oil producers have one thing on mind — ramping up production. The question is, by how much?
- If production rises too quickly, prices could drop rapidly — a negative for oil-exporting countries.
- If production rises too slowly, they could miss out on oil sales — also a negative for those countries.
Pick 1 of 3: According to Hans van Cleef, an energy economist at ABN Amro Bank, there are 3 scenarios for oil (via WSJ):
- The likely scenario: van Cleef sees a 50% chance that major producers reach an agreement to raise output in August — which could prevent prices from rising much higher.
- The unlikely scenario: Oil producers stick with their existing production levels and prices continue rising.
- The other scenario: Oil producers fail to come to any agreement, and prices tank — falling as low as $50 a barrel, says van Cleef.
Looking forward: Oil is one of the top-performing sectors of 2021 and several analysts see the bull run continuing through the year. Like many things, politics is the wildcard to prices.