Oil at $100 a barrel was considered inevitable not too long ago, as Wall Street strategists predicted a commodities supercycle. And it still remains in play, even with the omicron variant raging and Covid cases rising.
Goldman Sachs said $100 oil is a possibility in 2023 thanks to record demand. The firm believes omicron fears are overdone as governments combat the new variant with more testing than lockdowns. Today’s Chart of the Day looks at Brent crude in 2023 dollar terms, taking into account the street forecasts of inflation and its effect on the greenback. The result? It turns out oil was nearing that threshold anyway. As recently as October it was a mere $7.04 away from hitting $100 in 2023 dollar terms.
Priced in 2023 dollars, Brent crude has neared level
The market saw this just a few years ago. In 2011, Brent climbed as high as $126 per barrel and stayed above $100 for the next three years as the Arab Spring cascaded through Northern Africa, impacting oil-producing nations like Libya, an OPEC+ member. Demand slowed in 2014 as China’s domestic growth decelerated and the U.S. shale boom quickly added supply. The result was a more than 70% decline in oil prices that lasted until 2016, when the market found a new equilibrium. Two years of global growth followed, until the trade war between the U.S. and China began in the summer of 2018.
That scenario is similar to today. The global economy is broadly rebounding from last year’s Covid-driven lockdowns. Crude hitting $100 oil has largely been considered inevitable given the hesitance of OPEC+ to unleash supply on the market and battered American producers’ desire to be more fiscally responsible with less drilling and less borrowing. Looking ahead, there’s demand on the horizon as even struggling airlines predict travel will return to 2019 levels in 2023. A global coordinated reserve release would be helpful in pushing prices at the pump lower for American consumers, but is widely considered to be a short-term solution.
Rising oil prices due to pent-up demand has been a key driver of inflation. But it works the other way too. Inflation has an effect on the value of the dollar, the currency in which oil contracts are priced. As the greenback rises, thanks to climbing yields and an expectation of three rate hikes in 2022, $100 oil could come faster than expected.
Stuart Turley is President and CEO of Sandstone Group, a top energy data, and finance consultancy working with companies all throughout the energy value chain. Sandstone helps both small and large-cap energy companies to develop customized applications and manage data workflows/integration throughout the entire business. With experience implementing enterprise networks, supercomputers, and cellular tower solutions, Sandstone has become a trusted source and advisor. He is also the Executive Publisher of www.energynewsbeat.com, the best source for 24/7 energy news coverage, and is the Co-Host of the energy news video and Podcast Energy News Beat. Energy should be used to elevate humanity out of poverty. Let's use all forms of energy with the least impact on the environment while being sustainable without printing money. Stu is also a co-host on the 3 Podcasters Walk into A Bar podcast with David Blackmon, and Rey Trevino.
Stuart is guided by over 30 years of business management experience, having successfully built and help sell multiple small and medium businesses while consulting for numerous Fortune 500 companies. He holds a B.A in Business Administration from Oklahoma State and an MBA from Oklahoma City University.
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