BANK OF AMERICA FORECASTS OIL TO RISE TO 120 DOLLARS PER BARREL

The continued rise in oil prices could continue through the middle of this year as travel demand recovers, Bank of America said in a note Tuesday.

The bank said the price of Brent crude could jump 32% from current levels to $120 a barrel, which would be the highest since the commodity surged in 2012.

Oil prices have risen more than 350% from lows reached during the 2020 pandemic, with Brent crude trading at $90.74 a barrel on Tuesday, the highest level since 2014.

“The combination of vaccines and prophylactics suggests that COVID-19 may soon become endemic”, the BofA said, adding that more effective treatments and reduced uncertainty around the virus will trigger a period of economic normalization.

In particular, as COVID-19 recedes, a rebound in travel is likely, which should cause an increase in demand for jet fuel, the note said.

That in itself could spur higher oil prices, since most fossil fuels are used for transportation.

Daily data on the number of trips through TSA checkpoints shows that there is still room for recovery as the virus recedes, as the latest figures are still 26% below pre-pandemic levels.

“Rising demand, reduced spare production capacity, low oil inventories and rising geopolitical tensions point to Brent crude reaching $120 a barrel by the middle of this year before returning to $80 a barrel in the second half of the year,” BofA said.

Energy investors have been paying close attention to the escalating standoff between Russia and Ukraine, which is believed to be the reason for the recent rise in oil prices.

Oil prices are already up about 17% year-to-date.

However, oil’s ability to stay above the $100 level has been hampered by the strength of the U.S. dollar, which has risen in value by about 7% over the past year.

“A weaker US dollar is necessary for oil to sustain triple-digit prices,” according to BofA.

The bank sees potential for a weaker dollar in the future if the Federal Reserve or if China becomes more aggressive in its monetary easing policy.

However, expectations remain that the Fed will raise interest rates at least four times this year, so US dollar strength could continue, adding weight to BofA’s view that any spike in oil prices is likely to be short-lived.


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