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Crude oil has risen to $US80 a barrel and could top $US100 in the next year or two. Bloomberg
Crude oil prices are set to continue rising after Brent crude vaulted over $US80 a barrel this week – and forecasters are not ruling out the price hitting $US100 a barrel.
"It would be easy to imagine that oil could rise to $US100," said HSBC chief economist Paul Bloxham. "We have a forecast that sees oil prices climbing. In 2020 we expect Brent crude to average $US85 a barrel.
"We don't think it would be hard to see oil prices rising higher than our forecasts and we're happy to characterise the risks as tilted to the upside."
Mr Bloxham said that the supply side of the market was putting the most pressure on prices as investment in the sector lagged.
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"Supply is being squeezed and that is putting further upward pressure on the price," he said. "A key support has been the lack of investment in large conventional oil projects in the past few years and that's starting to show through.
"As fields age, we think that will weigh on global supply. The sanctions are about to come in place on Iran and we think the capacity for OPEC to respond further is limited."
In a note on Tuesday, Bank of America Merrill Lynch analysts lifted their average Brent crude oil price forecast for 2019 from $US75 a barrel to $US80 a barrel citing cuts to Iran's output as the most important catalyst for the change. Continue to boil
"The most important supply-side development since we last changed our forecasts in May has been Iran," they said. "In short, reported disruptions to Iranian exports as a result of US sanctions have already significantly exceeded our initial expectations of a 500 thousand b/d drop by 1Q19."
Morgan Stanley strategist Martijn Rats reiterated in a note last week that he expected Brent crude to hit $US85 a barrel in the coming months and said that it could climb as high as $US105 by 2020. "In coming months, our modelling suggests further inventory draws globally," he said.
Stephen Innes, OANDA's head of trading Asia Pacific, said OPEC's unwillingness to make any major changes to production before December made for a convincing bullish argument.
"With OPEC showing little inclination to add amounts anytime before the December 3 summit, it's very likely, in the absence of any about-face from OPEC, that Brent could trade to $US85 plus and WTI [West Texas Intermediate] $US75 plus ahead of the November 4 Iran sanction date as bullish expectations should continue to boil," he said.
"But when taken in combination with the fact US commercial crude oil inventories are at their lowest since early 2015, it makes for a convincing bullish argument."
HSBC's Mr Bloxham said that Australians were likely to feel the pinch of higher oil prices at the petrol pump, with the bank forecasting the Australian dollar to fall below 70¢ next year. Headline inflation
"Petrol prices have been rising in Australia," he said. "The falling Aussie and rising oil means in all likelihood [petrol] prices will continue to rise."
Mr Bloxham said that he was more bearish further out and expects Brent crude to drop back to $US75 a barrel by 2021.
While higher petrol prices could feed into headline inflation in the short term, Commonwealth Bank senior economist Gareth Aird said that over the longer term higher petrol prices would likely dampen consumer spending and inflation.
"It's going to weigh on the demand for other goods and services but it's hard to know what impact that will have. Airlines will up their ticket prices but they might sell less so it's hard to know what those secondary impacts are."
AFIC's Mark Freeman said on Monday that the resource sector was looking very attractive in light of the rising oil price.
"With the resource sector, the market spends more of its time looking at the oil price from here," he said. "The oil price has been fairly robust and we're seeing a pretty good response form Woodside Petroleum, Santos and Oil Search."
FAR Price at posting:
11.5¢ Sentiment: Buy Disclosure: Held
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