Has the new era of $80 oil arrived? This could affect the markets

It seems that the days are far away He was talking about forecasts Petroleum above 120 and even 150 dollars. The energy market has eased and now seems to find new benchmarks to look at. Countries cannot control the price of black gold, but they can push it in one direction or another. And the latest signals from some of the oil market’s biggest policy makers are that they want prices to stay above $80. This is how the analyst sees it at least. Bank of America, Francis Blanch.

That is the supposed path that the price of crude oil may have in the long term. A situation that could benefit energy companies and their investors. Historically, those who are in charge of taking the baton at the political level in the producing countries seem intent on keeping oil above $60, a level that encourages them to drill to get more while keeping the cost of gasoline low enough not to slow down the economy.

For the first time, the OPEC and its allies decided this month to collectively cut production even though oil prices were above $90. The cut is modest, but it shows the cartel is still nervous about declining demand and prices. In addition, the US is increasingly using its Strategic Petroleum Reserve to influence prices, and there are indications that the US administration also has a somewhat higher target for crude.

The Department of Energy has been selling oil from the reserve for months to increase supply and lower prices. That sale is expected to end next month, raising the question of when the US will eventually switch to buying more oil to replenish its heavy hydrocarbons larder.

A report last week from Morgan Stanley It noted that the US administration is considering buying oil again when prices drop below $80. “That would indicate that they see $80 as a reasonable price for oil.or at least a relatively ‘attractive’ one to fill the storage tanks”, points out the bank.

Earlier this month, the West Texas Intermediate (WTI), the reference barrel for black gold in the United States, fell to 81 dollars. Brent, the international benchmark, was trading around 91 dollars. “Coupled with rising global inflation, what does US OPEC+ and energy policy mean for future oil prices?” writes Blanch. “In our view, means that the $80 is the new $60 for Brentthey explain.

Forecasts for the long term

The repurchase of oil for the strategic reserve when it falls below 80 dollars it would signal to producers that the government wants to keep prices high enough to incentivize more drilling. The Biden Administration it needs to strike a delicate balance, keeping prices high enough that drillers don’t leave, while making sure prices don’t rise so high that they cause gasoline to skyrocket again.

In response to the Morgan Stanley report, the Department of Energy denied that there is a “trigger price”. He indicated that the government does not expect to buy oil for the reserve in the short term. “Oil could rise well above $80 next year.”Bank of America predicts. Blanch, who is more bullish than other analysts on oil prices, expects them to average $100 in 2023, “with upside risk from Russian supply disruptions and downside risk from a macro slowdown.”

Other banks and agencies have somewhat lower targets. citi, for example, expects Brent to trade above $72 in the second quarter of next year. The Energy Information Administration hopes that Brent will average $97 in 2023. And how does this affect companies? For most oil producers, any price above $60 is profitable.

But if $80 becomes the new bottom, investors in oil companies could see years of free cash flow and dividend increases for years to come. “It’s time to look at the sector against this backdrop,” according to the Bank of America analyst. The expert focuses on companies in the sector such as Exxon Mobil, APA Corp, Ovintiv and Hess. “Also ConocoPhillips as a more defensive bet”, he maintains. The new era, at least for the experts, seems to have arrived.

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