Though demand remains depressed, JPMorgan still thinks a bullish oil supercycle is on the horizon. A huge amount of supply has been taken offline and the industry could have major trouble attracting future capital.
“The reality is the chances of oil going toward $100 at this point are higher than three months ago,” said Christyan Malek, JPMorgan’s head of Europe, Middle East and Africa oil and gas research.
Looming deficit suggests prices will ‘go through the roof’
For years, the world has had more oil than it needs. That glut caused storage tanks to fill up to the point that crude turned negative in April.
So oil producers slashed supply. But now the pendulum in the boom-to-bust oil industry could swing too far in the opposite direction.
Oversupplied oil markets will flip into a “fundamental supply deficit” beginning in 2022, according to a JPMorgan report published June 12. The most likely scenario, JPMorgan said, is that Brent rises to $60 a barrel to incentivize higher output.
The report didn’t spell out a price target for its bull case scenario — yet Malek told CNN Business that JPMorgan’s $190 bullish call from March still stands. In fact, he thinks it’s even more likely now.
Malek, who has been bearish since 2013, pointed to the very large supply-demand deficit that’s expected to emerge in 2022 and could hit 6.8 million barrels per day by 2025 — unless OPEC and others pump much more.
“The deficit speaks for itself. That implies oil prices will go through the roof,” he said. “Do we think it’s sustainable? No. But could it get to those levels? Yes.”
BP sounds the alarm
BP also said it plans to write down the value of its assets — including untapped oil and gas reserves — by up to $17.5 billion.
Somewhat counterintuitively, JPMorgan’s Malek said the BP writedown and gloomy forecast are “one of the most bullish”…