Jefferies analyst Christopher Wood said on Wednesday (December 1) that oil prices are likely to rise “significantly” from current levels given the world’s heavy reliance on fossil fuels. Last year, fossil fuels met 84% of global energy needs. Although “political attacks” in recent years have removed incentives to invest in fossil fuels, their importance remains. Although the Fed’s tightening policy may put pressure on the crude oil market, Wood believes that the Fed will eventually give up tightening and turn to financial restraint.
Analysts expect oil prices to rise to $150 if global economy fully opens
Christopher Wood, global head of equity strategy at investment bank Jefferies, said oil prices could rise sharply from current levels, potentially reaching $150 a barrel, given the world’s heavy reliance on fossil fuels.
Wood said: “If the global economy is fully reopened, oil prices may rise sharply, but there is still a lot of uncertainty.” He pointed out: “When oil prices rose to more than 80 US dollars, many Asian countries are still under lockdown. If the world realizes Fully reopening, oil prices could rise to $150 because supply constraints are so severe.”
The strategist said the “political attack” on fossil fuels in recent years has removed incentives to invest in the sector, yet the importance of fossil fuels remains. He noted that 84% of global energy demand last year was met by fossil fuels. “For me, the problem is not oil prices, it’s the epidemic,” Wood said. “After reopening, oil prices will be higher because no one is investing in new oil projects, but the world is still consuming fossil fuels. So oil prices could go significantly higher, that’s for sure.” It will exacerbate inflation fears.”
Oil prices suffered their biggest drop of 2021 on Friday after the World Health Organization issued a warning about the Omicron strain last week, triggering a plunge in global markets. Oil prices have since been plunged into wild swings as investors look to figure out the economic impact of the newly discovered variant. “The only thing that will really push oil prices down is new lockdowns in the West, which is why when we saw the news about the new variants, oil prices fell back,” Wood said.
The epidemic has triggered volatility in the oil market, and the Fed’s tightening policy may not be sustainable
Crude oil markets fell sharply on Tuesday after Moderna Chief Executive Stephane Bancel said he expected the vaccine to be less effective against the new strain. Bancel also said on Monday that it could take months to develop and ship a vaccine specifically against the Omicron variant.
Looking ahead, Wood predicted that structurally, inflation could end up being higher than pre-pandemic levels. He said that once the epidemic takes a negative turn, even if vaccination efforts are stepped up, the oil market may experience more fluctuations in the future. Expectations of higher structural inflation going forward mean markets will be at the mercy of tightening and taper tantrums, Wood explained: “It really depends on how hawkish the Fed is going to be.”
Federal Reserve Chairman Jerome Powell said on Tuesday that the central bank may end its bond-buying program early in the face of rising inflationary pressures. That could open the door for the Fed to raise interest rates sooner, although Powell stressed that tapering bond purchases should not be seen as a sign that a rate hike is imminent.
Wood said: “In my opinion, they will remain fundamentally dovish. If they suddenly decide to start tightening, I believe the market will fall sharply.” However, Wood said: “I still believe that the Fed will abandon tightening policy soon. , moving more in the direction of financial repression, that is, further severing the link between inflation and interest rates.”
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