In a remarkable turn of events, a growing chorus of market forecasts are anticipating the revival of $100 US oil by the end of the year. If this prospect materializes, it could worsen financial burdens for consumers and complicate central banks’ job of fighting inflation.
The North American benchmark, West Texas Intermediate (WTI) crude, has staged a notable rebound, rising 30% since June 1. This week it is hovering around $90 US per barrel, the highest since November of last year. . Meanwhile, the global benchmark, Brent crude, traded above the US threshold of $93 this week.
In recent days, a slew of analysts have revised their oil price forecasts, pointing to the possible emergence of triple-digit oil prices next fall. Banks like Bank of America, Citigroup, Goldman Sachs and Chevron CEO Mike Wirth are now all on the same page, predicting US Brent crude oil prices will hit $100 before the start of 2024, according to insights from Bloomberg.
Deloitte Canada’s Andrew Botterill, currently attending the 24th World Petroleum Congress in Calgary, is reviewing Deloitte’s upcoming oil price forecast report. In a recent interview, he alluded to the possibility of $100 oil, confidently saying, “I absolutely see it ($100 oil)… I definitely think we’re going to have moments,” adding, “I can think of many more reasons mention why oil goes up now then down.”
Statistics Canada reports a two-month increase in annual inflation in Canada, with higher gasoline and energy prices the main drivers. Last week, the International Energy Agency (IEA) forecast that global oil demand will reach 101.8 million barrels per day by the end of the year, driven by a revival in Chinese demand. In addition, Saudi Arabia and Russia have agreed to extend their voluntary oil production cuts until the end of this year, resulting in what the IEA calls a “substantial market shortfall.”
Botterill highlights the current robustness of global demand and the approaching winter season, traditionally characterized by increased heating needs, as factors contributing to the strengthening of oil prices.
Rising oil prices in the coming months are expected to complicate the efforts of the Bank of Canada and other central banks in controlling inflation. Energy costs are increasingly influencing the inflation calculation for Canada, according to Botterill’s observations.
However, Canadian energy companies are well positioned to benefit from the increase in prices, as argued by Lisa Baiton, president of the Canadian Association of Petroleum Producers. She points to the optimistic outlook for the sector, with increased activity, mergers and acquisitions and well-capitalized companies ready to invest.
Although Canadian oil and gas companies posted record profits in 2022, they have been criticized for funneling those profits mainly into shareholder returns, rather than into substantive emissions reduction initiatives. Baiton recognizes the disparity between Canadian and American counterparts in access to government incentives for technologies such as carbon capture and storage.
Keith Stewart of Greenpeace Canada suggests that regardless of energy companies’ choices regarding decarbonization projects, $100 oil could accelerate the global energy transition by making alternatives such as energy efficiency, electric vehicles and heat pumps more attractive.
Despite the prevailing optimism, analysts like Phil Skolnick of Eight Capital continue to take a cautious approach, predicting an average WTI price of $86 per barrel and an average Brent price of $90 US for full-year 2024. Nevertheless, Skolnick is optimistic about oil prices for the full year. next fall, citing OPEC’s 2023 global demand forecast, which exceeds the IEA’s projection.
If OPEC’s forecast comes true, the supply shortage in the fourth quarter of 2023 could become the largest shortage in more than a decade, Skolnick said in a research note.