Oil could vault as high as $150 a barrel, veteran analyst warns

Oil prices are soaring and nothing appears to be stopping their ascent. December to January saw international benchmark Brent crude climb by roughly $11 a barrel, and it’s gone up nearly the same amount since the start of February, underpinned by supply concerns, rising inflation and geopolitical tensions.

Brent surpassing $100 a barrel is almost a given at this point, energy analysts say; but now, an increasing number of forecasters predict the commodity surpassing $125 a barrel and even higher. 

“Given that you’ve got this underinvestment in capital exploration, we’re running low on physical oil, we’re running short of supply,” John Driscoll, director of JTD Energy Services, told CNBC on Monday. “There is a scenario where we could vault past $120, even as high as $150” a barrel. 

Brent crude crossed $95 a barrel in the last week, its highest level since the summer of 2014 and a 63% increase year-on-year. It was trading at $93.98 per barrel on Wednesday at 10:20 a.m. in London. 

Tensions over the threat of a Russian invasion into Ukraine have also helped to push prices up, though a partial drawdown of Russian troops from Ukraine’s border areas on Tuesday led the commodity’s price to retreat about 3% from the previous day. While Moscow has rejected the assumption of an impending invasion, NATO leaders and U.S. President Joe Biden insist that the risk of war remains high. 

But it’s “not only the geopolitical tailwinds that we’re picking up, but the fundamentals,” Driscoll said. 

“The market is in what we call a steep backwardation which gives a premium to any prompt physical available oil. We’re starting to sense that demand is on its way to recovering, and we’re looking at supply shortfalls,” he explained. 

Those shortfalls exist both in terms of OPEC+ production — the alliance of OPEC and several non-OPEC countries — pumping oil below the levels it promised to add to markets, and sector underinvestment in the U.S. and other countries in the wake of Covid-19 and governments’ pushes to switch to renewables. 

OPEC+ members with quotas were short of their production targets by 700,000 barrels per day in January, with co-leaders of the group Saudi Arabia and Russia also pumping below their quotas, according to S&P Global Platts. This comes despite pledging to gradually unwind record supply cuts.

These aren’t the only signs of a continued bull run for oil: money is pouring into investments in oil-related stocks, and international oil companies are raking in massive profits. As inflation in the U.S. hits its highest rate in decades, analysts recommend energy stocks as smart investments. That inflation, aided by global supply chain issues, isn’t just hitting the prices at the gas pump but is also pushing up costs for oil drillers themselves, particularly in the U.S….