The Case for $100 Oil: More Driving, Less Drilling
By Ryan Dezember
Wall Street's summer forecast calls for $100 oil.
A barrel hasn't cost that much since the summer of 2014, before OPEC launched a price war with U.S. shale producers and sent oil prices into a yearslong slump. Early in the pandemic, prices fell to uncharted depths. But the bust ended last year, when crude prices gained more than 50% and oil stocks led the broader market higher.
The benchmark U.S. barrel has added another 16% to start this year, ending Wednesday at $87.35. Brent crude, a key price in international trade, closed at $89.96 a barrel, also up 16% in 2022. Energy shares in the S&P 500 have risen 18% this year, the only sector in the stock index up through Wednesday's close.
Analysts expect oil demand to return to pre-pandemic levels this year and say that prices need to rise higher yet to entice U.S. producers to drill more wells and to discourage consumption that has been unbowed by the highest gasoline prices in years.
U.S. producers have been rewarded by investors for restraint since flooding the market with shale oil before the bust. Meanwhile, break-even drilling costs are rising because of labor and materials inflation and a shakeout that has reduced capacity and competition for hydraulic fracturing and other oil-field services.
“The oil market is heading for simultaneously low inventories, low spare capacity and still low investment,” Morgan Stanley analysts wrote in a research note, lifting their price forecast for the summer quarter by $10 a barrel, to $100 for Brent and $97.50 for West Texas Intermediate.
For a longer version of this article online, follow this link.
How would higher oil prices change your daily life?Let us know by replying to this email. Your comments may be edited before publication in future newsletters, and please make sure to include your name and location.
By Ryan Dezember
Wall Street's summer forecast calls for $100 oil.
A barrel hasn't cost that much since the summer of 2014, before OPEC launched a price war with U.S. shale producers and sent oil prices into a yearslong slump. Early in the pandemic, prices fell to uncharted depths. But the bust ended last year, when crude prices gained more than 50% and oil stocks led the broader market higher.
The benchmark U.S. barrel has added another 16% to start this year, ending Wednesday at $87.35. Brent crude, a key price in international trade, closed at $89.96 a barrel, also up 16% in 2022. Energy shares in the S&P 500 have risen 18% this year, the only sector in the stock index up through Wednesday's close.
Analysts expect oil demand to return to pre-pandemic levels this year and say that prices need to rise higher yet to entice U.S. producers to drill more wells and to discourage consumption that has been unbowed by the highest gasoline prices in years.
U.S. producers have been rewarded by investors for restraint since flooding the market with shale oil before the bust. Meanwhile, break-even drilling costs are rising because of labor and materials inflation and a shakeout that has reduced capacity and competition for hydraulic fracturing and other oil-field services.
“The oil market is heading for simultaneously low inventories, low spare capacity and still low investment,” Morgan Stanley analysts wrote in a research note, lifting their price forecast for the summer quarter by $10 a barrel, to $100 for Brent and $97.50 for West Texas Intermediate.
For a longer version of this article online, follow this link.
How would higher oil prices change your daily life?Let us know by replying to this email. Your comments may be edited before publication in future newsletters, and please make sure to include your name and location.
