FX.co ★ Three main drivers of oil prices in autumn 2021

Impressive income of oil producers

High incomes of oil companies contribute to the development of a bullish trend in the oil market. The US shale industry became the leader in the commodity market. Its revenue is constantly growing. According to the estimates of Norwegian consulting company Rystad Energy, in 2021, US shale companies may expect record-high hydrocarbon revenue of $195 billion before factoring in hedges. This will become possible if WTI futures continue their strong run and average at $60 per barrel, whereas natural gas and NGL prices remain steady. At the same time, experts at The Goldman Sachs also forecast a bullish trend for Brent crude. In the next 18 months, Brent oil will be hovering between $75 and $80 per barrel.

Mounting demand for commodities in China

Oil prices are also boosted by the rising demand for commodities in China. According to analysts, in the spot market, demand from the largest oil importer is confidently recovering. The positive trend was recorded in China just after the economic reopening. In the foreseeable future, Beijing is going to complete the thorough inspection of national refiners, thus allowing private oil refineries to resume oil imports. Notably, from April 2021, prices of the main oil benchmarks slid to a 14-month low amid low consumption in China and a slump in the volume of oil refining. However, now, the situation is somehow improving. Analysts suppose that China’s oil importers are increasing purchases and paying high premiums for the supply of raw materials thanks to the lifting of some coronavirus restrictions.

Oil supply deficit

Most experts are sure that oil supply may reach its peak just in several years. They suppose that the shale crisis that may arise in the US is likely to push oil supply to record highs. IHS Markit Vice Chairman Daniel Yergin foresees that shale oil production may slump amid a sharp decline in investments, but then it is likely to recover, though at a slower pace. He also emphasizes that producers should not expect a long-term profit from shale wells as they dwindle faster than oil ones. Against this background, investments in shale field exploration are rapidly falling. At the same time, traditional oil sources are more resilient to negative factors. Francisco Blanch, the head of global commodities and derivatives research at Bank of America, expects that in 2022, Brent crude may hit $100 per barrel. However, the world may face a significant drop in oil supply. At the moment, the bullish forecast provided by Francisco Blanch is the most positive among Wall Street banks. Economists are sure that the predictions will become true in the long term.