Eric Nuttall is getting his day in the sun.
A Partner and Senior Portfolio Manager at Ninepoint Partners, whose writing we’ve featured in our Weekend Reading emails, was wrong about oil for years despite his exhortations and pounding of tables.
However, while oil has been correcting recently, his energy fund was higher by nearly 280 per cent this year, as of the end of September, as oil and gas stocks took off.
Nuttall believes the U.S. benchmark crude price can eventually take out its all-time high of $145 a barrel.
JP Morgan is in the same camp saying the European benchmark, Brent crude, could hit $150 by 2023. Here’s why.
Rising oil prices are here to stay according to JPMorgan, with the bank estimating that Brent prices could hit $150/barrel in 2023 as the OPEC+ cartel control supply and defend higher prices.
That means the Biden administrations release of strategic petroleum reserves will have little impact on the underlying price of oil, as was made clear in the initial price reaction in oil last week after the government flooded the market with 50 million barrels.
The main driver behind oil prices is supply and demand.
And while the Omicron COVID-19 variant has put a dent into oil prices, with investors fearing that potential country lockdowns would reduce travel and therefore lower demand for oil, JPMorgan viewed that price move as an overreaction.
“We believe the market may overestimate the impacts of the recent emergence of the Omicron variant of COVID-19 on oil prices during the US holiday period,” JPMorgan said in a note, inferring that there will be little to no slowdown in holiday travels even as the Omicron variant spreads.
With demand for oil likely to remain steady, supply will remain the key driver behind oil prices for years to come.
And with OPEC+ “being firmly in the driver’s seat for oil prices,” JPMorgan thinks Brent will hit $120/barrel in 2022, and could even overshoot to $150/barrel in 2023, representing potential upside of as much as 100% from current levels.
“We believe OPEC+ will defend the oil price with paced volume growth to keep inventories low, markets in balance and reservoirs well managed,” JPMorgan explained.
Increased supply from US-based oil producers could help put downward pressure on oil prices.
But the US oil rig count is at about half what it was in 2019, and investments back into the sector have been slow ever since oil prices briefly turned negative amid the onset of the pandemic in 2020.
That’s a recipe for rising oil prices, at least until US oil production hits levels last seen before the pandemic.
Related stories: Five Reasons the Oil Rally Will Last