Oil at $120 a barrel?: Bank of America says likely

The war between Ukraine and Russia keeps the markets tense. Both are among the largest producers of raw materials in the world and prices, as a result of the armed conflict, have skyrocketed. In this context, WTI oil and Brent rise over 50% so far in 2022, and according to Bank of America they will continue to rise.

In its latest report, the US investment bank noted that crude oil inventories have fallen to a dangerously low point in Europe, North America and Asia’s OECD countries, just as additional production capacity from the OPEC+ has been reduced to the lowest levels since April 2020. For this reason, it estimated that strategic oil barrels held by OECD governments are already low and are projected to decline sharply in the futureleaving consumers exposed to any negative supply shocks going forward.

In fact, it details “OECD commercial crude oil inventories have fallen to 993 million barrelsthe lowest levels in March since 2012, as post-pandemic demand has faced a large power supply shock from Russia in the first quarter of 2022.”

“In addition, oil reserves are approaching a vanishing point not only in most segments, but also in most regions of the world. The number of barrels of oil in storage has fallen sharply in Europe to 890 million barrels, the lowest seasonal level since at least 2005,” the report says.

In his analysis, he also explains that “as stocks and other risky assets have sold off in recent months due to the prospect of much tighter monetary policy, investors have wondered if oil will be the next to fall. However, the oil complex has held up well so far. In our view, crude oil is relatively cheap compared to other fuels and prices are unlikely to see a major pullback unless a recession is imminent.”

In this regard, he explained that “Monetary policy tightening and recession are now on investors’ minds, and a drop in global oil consumption remains an issue. In that sense, low oil stocks and OPEC’s reduced spare capacity support our $102 average Brent recommendation in 2022-23, but oil could exceed $120 in the short term.”Bank of America said.

Today the WTI is trading at US$113.82 and the Brent at US$116.76.

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