The price of oil - expected to see the quickest rise in 30 years

• Investment banks estimate a price of 100 dollars/barrel in 2022

• Bank of America, Socar Trading and Energy Aspects have the highest estimate concerning Brent crude in the next two years

Investment banks and crude traders expect an increase in prices on the international market in the next two years, with estimates even showing European Brent crude going to 100 dollars per barrel, as production is dropping in the US, amid the freeze that happened in Texas in the beginning of this month. According to oilprice.com, the decline in output was higher than the one caused by the lockdown, last year, and analysts anticipate that it will take some time until a turnaround happens, if it ever does.

The current forecasts come after, last year, the growing revisions regarding the evolution of the oil price were launched with caution. At the time, some banks estimated that the average price of Brent crude would reach $ 65 a barrel this year, which only a few months ago seemed rather optimistic, given the difficult launch of Covid-19 vaccines, the oil surplus on the market and the emergence of new strains of coronavirus in different parts of the world.

Recently, oil demand has steadily recovered in some key markets, especially in China, and this recovery has largely offset weak demand from other large consumers, such as the United States, which has contributed to the price rising.

According to the quoted source, the government stimuli granted all over the world in response to the crisis caused by the lockdown have begun stimulating the oil market. Trillions of dollars have ended up in households and companies, in the hope that that would help return the GDP to growth sooner. In the US, analysts have revised upwards their forecasts for oil prices after the Joe Biden's proposal to issue a stimulus package of 1.9 trillion dollars.

The package is still being debated by Congress and may eventually be smaller than originally proposed. However, banks, the Federal Reserve (US central bank) and the Treasury Department expect a rapid economic recovery thanks to this new stimulus package, which will certainly include a recovery of oil demand as Americans begin to travel more.

At the same time, world oil stocks are declining, with OPEC + (Organization of the Petroleum Exporting Countries plus its out-of-cartel partners) strategies for reducing production yielding results.

In this context, in the beginning of last week, Bank of America, oil company Socar Trading and consulting firm Energy Aspects estimated that the price of Brent oil could increase to $ 100 a barrel in the next two years.

According to the quoted source, government incentives in economies around the world in response to the coronavirus crisis have begun to stimulate the oil market. Trillions of dollars have reached companies and households in the hope that this will help restore GDP to growth sooner. In the US, analysts have revised upwards their oil price forecasts following a proposal by Democratic President Joe Biden to launch a $ 1.9 trillion incentive package. The package is still being debated by parliamentarians and may eventually have a lower value than originally proposed. However, banks, the Federal Reserve (US central bank) and the Treasury Department expect a rapid economic recovery thanks to this new package of incentives, which will certainly include a return to oil demand as Americans begin to travel more.

At the same time, global oil stocks are declining, with OPEC + (Organization of the Petroleum Exporting Countries plus its out-of-cartel partners) strategies for reducing production yielding results.

In this context, at the beginning of last week, Bank of America, the oil company Socar Trading and the consulting firm Energy Aspects estimated that the price of Brent oil could increase to $ 100 a barrel in the next two years.

According to Socar Trading - a state-owned oil company in Azerbaijan - prices are rising based on the rebalancing of the market fundamentals, and by summer, Brent crude oil prices could reach $ 80 a barrel. "As supply remains limited, the price could rise further to $ 100 a barrel," Hayal Ahmadzada, the company's trading director, told Bloomberg.

Amrita Sen, a specialist in Energy Aspects, thinks that economic incentives are the main reason for the expected advance in oil prices. She said, according to Bloomberg Surveillance: "We have always anticipated a price of over $ 80 a barrel of oil in 2022. Right now I expect $ 100, given how much liquidity there is in the system. I would not rule out such an evolution".

The market is looking carefully, however, at what future strategy the OPEC+ will have, especially since a consistent return of demand has not yet become concrete, outside some markets such as China. According to expectations, it is possible that, starting in April, the OPEC+ group will start pumping over 1.5 million barrels a day more than it does now, which could put pressure on oil prices this year. On the other hand, starting next year, the effects of the lack of investments in oil production will become obvious and will generate a price increase, according to analysts.

• Bank Of America expects the quickest increase in the price of oil in the last 30 years

Oil prices will post the fastest rise in the last 30 years, over the next three years, according to Bank of America, which predicts the price returning to three-digit territory. Even though the bank estimates that in the next five years, the average price of Brent crude oil will be between $ 50 and $ 70 per barrel, it sees potential for it to rise above $ 100 / barrel in the coming years, amid improved fundamentals and the fiscal incentives.

According to the bank, OPEC+ could decide to raise output now, when the price of Brent oil is above 60 dollars/barrel, but a slow return of the shale output in the US on the international markets could however, lead to a return of the output cutting deal, in order to keep prices high.

"We believe that a slower increase of the shale output and the stability of oil prices will probably require continuing the management of the market by OPEC+ after April 2022", according to the bank's analysts.

OPEC+ is meeting this week, on March 4, in a video conference for talks about the progress of the deal concerning production.

• Banks predict a median price of 70-75 dollars/barrel for Brent crude in the coming months

Even if it sees the potential of the barrel going to 100 dollars in the future, Bank of America expects Brent price to be 70,

dollars / barrel in the second quarter of 2021, respectively an average of 60 dollars for the whole year, which represents an estimate increased by 10 dollars / barrel.

Morgan Stanley also sees Brent oil prices at $ 70 this year in the third quarter, and Goldman Sachs at $ 75 a barrel.

According to Bloomberg, speculative positions in the options market also show a rising volume of bets that the price will increase to a level of $ 100 for a barrel of Brent oil in December 2022.

Last week, Brent oil prices rose to a 13-month high level. In the second half of Friday, a barrel of Brent oil with April delivery rose to $ 66 on ICE Futures Europe, down about 1 percent from the previous session.

ADRIAN VOLINTIRU, EXPERT IN HYDROCARBON EXPLOITATION:

"Price increases in the oil sector will increase the price of natural gas, and the reaction on our market will be immediate"

What is taking shape is not good at all, warns Adrian Volintiru, an expert in the exploitation of hydrocarbons. He predicts the price of oil will increase significantly, which will be felt in the price of natural gas, then, following the lockdown, we will see a deep economic crisis. Adrian Volintiru said: "I don't see things going well at all. I understand that oil prices are getting close to the biggest increase since 1970, which can be seen on the stock markets as well".

Prices will increase in the means of transportation segment, product prices will increase as well, it will be a chain reaction, and that reaction will be immediate in our market as well. It will not be long in coming, as the Romanian market is moving in sync with European stock markets and industry players immediately align with the upward trend. Compared to the outbreak of an economic crisis, which in Romania happens with a certain delay compared to the countries where it first appeared, when we talk about increases in oil and gas prices, they are immediately felt on our market. This is probably the last ditch assault of fossil fuel".

In the opinion of Mr. Volintiru, there can also intervene legislative changes that control the market, as has happened in the past years as well, but under normal circumstances, under normal circumstances, the price will not be held down.

RĂZVAN NICOLESCU, DELOITTE ROMÂNIA:

"We are in a partially speculative bubble"

The rise of the oil prices is not beneficial at all for the industry, according to Răzvan Nicolescu, former delegate minister of Energy, actual Executive Lead Advisor Deloitte România, said: "I think that we are going through a partially speculative bubble. This kind of rapid and large increases are not good for the sector, speeding up the appearance of alternative energies".

At the end of last year, the Deloitte group was saying that the request for oil will recover by the end of 2021, as the vaccination campaigns become successful. At the time, the company was predicting for the current year, a median oil price of Brent crude of 50 dollars per barrel, and for 2022, of about 58 dollars per barrel. It's only in 2023 that Deloitte predicts a price above 60 dollars per barrel (64, to be more precise).

LAURIAN LUNGU, CPAG:

"Predictions for the price of oil - a scenario and nothing more"

Every investment bank (ed. note: such as Bank of America) makes this kind of forecasts, they have some interests sometimes in coming up with this kind of scenarios, says Laurian Lungu, co-founder of the think-thank Consilium Policy Advisors Group (CPAG): "We've seen some years ago estimates that the price of oil would go to 200 dollars/barrel. It is a scenario and nothing more. There are of course arguments in favor and against: in this energy transition that reduces oil production you can expect there will not be such high reserves and sure, price will increase. On the other hand, such a quick price rise could strangle economic growth. The price in general returns to a certain equilibrium point in the long term. (...) All the prices that enter into the production process, commodities, whether they are called copper, nickel, aluminum etc., all of them have gone up. Prices of agricultural products have also increased a lot".

In his opinion, a price of 60-70 dollars / barrel is preferable for large oil producers as a long-term average.

Laurian Lungu says: "Two years ago, this was a price that Saudi officials saw as sustainable: to support both economic growth and their budgets. That's the level they saw as OK, the calculations may be different this time, because at this price the American shale sector comes in, meaning that American producers also make a profit. It's hard to say at what price the market is balanced. What is certain is that in real terms, the price of oil was, until a few months ago, at a 3-decade low and had lots of room to jump".