Experts: ‘It cannot be ruled out that Brent quotes may reach $100 per barrel by the end of the year’

Experts: ‘It cannot be ruled out that Brent quotes may reach $100 per barrel by the end of the year’
Photo: realnoevremya.ru/Maxim Platonov

At the end of September, Goldman Sachs raised its forecast for Brent prices in the 12-month perspective to $100 per barrel against the previous forecast of $93. On the first day of November, quotations for this brand of oil were at the level of $91,09 per barrel — for more than a month Brent has been more expensive than $90. The Russian Urals is also feeling better than at the end of last year — above $80. How high the probability is that Brent may approach the psychological mark of $100 by the end of the year, as well as how much the Arab-Israeli conflict is affecting it, is in the material of Realnoe Vremya.

OPEC+ limits production, and the US has sold off half of its oil reserves

According to experts, this month oil price quotes already take into account all the existing conditions, and therefore only completely new events will be able to make changes.

“At the beginning of November 2023, oil price quotes already take into account all the key drivers, so the scenario of growth to three-digit levels can be realised only when new catalysts appear. These may be interruptions in supplies from the Persian Gulf against the background of the Arab-Israeli conflict or force majeure at other mining facilities," said Igor Galaktionov, an expert on the stock market of BCS World of Investments.

According to him, the policy on OPEC+ quotas on the horizon of 2024 is not yet obvious, especially in terms of voluntary reductions.

“Will Saudi Arabia raise production and will oil exports from Russia increase? If not, then the quotes may well receive support by revising the forecasts for the proposal for the first quarter," Igor Galaktionov believes.

Mikhail Smirnov, the deputy director for investments at General Invest, also believes that the increase in oil price quotations may be caused by new incidents, in particular, related to the situation in the Middle East. In addition, there are a number of other possible factors, for example, the same OPEC+, which continues to limit production.

“Indeed, it is impossible to exclude the scenario that Brent quotes may reach $100 per barrel by the end of the year. The main and immediate driver of this may, of course, be events in the Middle East, so, in the event of an intensification of the conflict, Iran may be directly or indirectly involved in it, and the latter has now increased oil production to almost 5-year highs, respectively, any threat to the Iranian oil infrastructure may lead to an increase in quotations," the expert is sure.

At the same time, at the time of writing this comment, Brent has lost almost the entire “Middle East premium” and is trading lower again: around $85-86 per barrel. Perhaps, speculators were expecting an even bigger and even more public escalation.

“It is important to note that over a longer time horizon, a number of significant factors may speak in favour of an increase in oil prices: OPEC+ continues to limit production, and in an attempt to bring down gasoline prices, the US administration sold off half of the US strategic oil reserve (the latter fell to the levels of the 80s). Moreover, oil reserves in Cushing, the US, are near 15-year lows, and the latter is the most important and active oil hub in the country. Indeed, for example, the US Energy Information Agency in its October reports forecasts that in 2024 oil prices will rise to about $95 per barrel. The main uncertainty for oil prices remains how well the world's largest economies will feel in 2024: for example, concerns about the risks of a recession in the United States are increasing, and the same China, from which they expected a rapid economic opening after the pandemic, has not yet justified investors' expectations," Mikhail Smirnov said.

He is confident that the growth of oil prices will support the ruble, but it is difficult to say how significant this support will be. “Variables related to sanctions, geopolitics and trade infrastructure come into play," the expert added.

Finam analyst Alexander Potavin agrees that there are more arguments in favour of the growth of oil prices.

“About a third of the world's oil is produced in the Middle East region, and in the short term, the “military premium” in its price is beneficial to the leading oil-producing countries, since they receive higher prices without reducing production volumes. At the same time, oil prices are now showing high volatility, reacting to the course of hostilities. Therefore, it cannot be ruled out that a new wave of growth will come after the current decline in quotations," he explained.

According to him, Saudi Arabia will increase production volumes when oil prices soar to $110 per barrel.

“They will probably keep the global oil market in suspense up to this point. In November, OPEC+ ministers are going to meet to discuss further parameters of the deal, but so far nothing suggests that Russia and Saudi Arabia will radically change their policy of production and export cuts. We believe that in the fourth quarter of this year, oil prices will remain at high levels against the backdrop of an artificially created global oil shortage and geopolitical risks in the Middle East. The current price range is $85-98 per barrel," Alexander Potavin said.

realnoevremya.ru/Tatyana Demina

“The positive from the rise in oil prices is taken into account in the value of shares of domestic oil companies”

According to the Finam study dated October 25, the oil market has been in short supply in recent months amid OPEC+ actions, strong demand, production cuts from Saudi Arabia and exports from Russia. Additional support for prices is provided by geopolitical tensions in the Middle East.

“The combination of these factors allowed oil quotes to gain a foothold at $90 per barrel for the first time in a year. If the recession in developed countries or the slowdown in China's economic growth does not reduce the demand for black gold, then oil prices will remain at elevated levels," the authors of the study forecast.

One of the main beneficiaries of the current market situation are representatives of the American oil and gas sector, who benefit from the growth of oil prices and may not reduce production. Most US companies have reduced their debt burden, which allowed them to increase payments to shareholders and engage more actively in M&A transactions, experts note.

realnoevremya.ru/Maxim Platonov

The favourite of Finam analysts in the American market is major Chevron, which plans to acquire the oil and gas company Hess. The purchase will allow Chevron to get 30% in a promising project in Guyana and will increase Chevron's production by about 14%, experts emphasise.

“The combination of positive market conditions, attractive returns on payments to shareholders and a successful deal on the purchase of Hess gives the opportunity to maintain a positive outlook on Chevron shares. The target price for them is $192,6, which corresponds to an upside of 22,9%," experts say.

Russian oil companies are in an extremely favourable situation. The weakening of the ruble, the reduction of the discount on Russian oil, and the rise in world prices for black gold led to that in October the ruble value of Urals amounted to about 8 thousand rubles per barrel.

“At the same time, the positive from the rise in oil prices has already been largely taken into account in the value of shares of domestic oil companies, and the wave of strengthening of the ruble due to the decree on the mandatory sale of foreign exchange earnings may have a negative effect on representatives of the sector," analysts warn.

Maxim Kokunin, Galiya Shakirova
Analytics
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