Wall Street Split on $100 Oil Pits Goldman Against JPMorgan

Wall Street is sharply split on the prospect of oil hitting $100 a barrel this year. This week, veteran analyst Jeff Currie at Goldman Sachs Group Inc. made an exuberant pitch for raw materials markets in 2023: “You cannot come up with a more bullish concoction for commodities,” he said.

A cocktail of resurgent Chinese demand and chronic under-investment will send crude to $105 a barrel or higher, he predicted.

On Thursday came a rejoinder from JPMorgan Chase & Co.’s Natasha Kaneva. Even though China’s economic reopening has improved the outlook, she said Brent futures will struggle to breach $100 in the absence of a geopolitical event.

Oil prices have a had a rocky start to 2023 as traders weigh the resumption of travel in China against a resurgence of Covid cases there, and balance forecasts for growth in global fuel consumption against a fragile economic backdrop. Benchmark Brent traded near $86 a barrel on Wednesday.

Morgan Stanley is largely in the bullish camp with Goldman. Despite trimming price forecasts last week, analyst Martijn Rats expects demand to start straining spare production capacity in the second half, propelling Brent into a range of $100 to $110 a barrel.

Conversely, Citigroup Inc. has an even more bearish perspective than JPMorgan. Veteran analyst Ed Morse warns that global oil demand will see only “meager” growth this year, trailing the expansion in supplies and causing Brent to average $80 a barrel in 2023.

For Goldman’s Currie, the “Goldilocks” environment for a price rally comes from a combination fuel demand strength — powered by China — the slowing pace of US interest rate increases and a weaker dollar, coupled with “critically” low inventory levels caused by years of under-investment in production.

JPMorgan’s Kaneva counters that “the reality for the oil market is that there is simply more supply than demand this year.”

Adding to the uncertainty for analysts is Russia. While Moscow faces European Union sanctions on its oil exports following the invasion of Ukraine, it has so far managed to keep barrels flowing to customers.

The International Energy Agency, which has predicted an imminent collapse in Russian output since the assault on Ukraine last spring, continues to forecast that production will plunge. The agency said on Wednesday that Russia’s supplies will tumble about 1.5 million barrels a day by the end of this quarter.

Nonetheless, Russian Deputy Prime Minister Alexander Novak insists that oil production has remained stable so far this month, according to remarks published on Thursday by Interfax.

“While the medium-term is unquestionably bullish, the near-term is the most uncertain in decades,” said Bob McNally, president of Rapidan Energy Group and a former White House official. “In this tug-of-war between the twin exogenous shocks of bullish Russia and bearish macro, I can make a case for $50 oil and for $150.”

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