Oil just hit its highest level of the year — and some analysts expect a return to $100 before 2024

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In an aerial view, oil storage tanks are shown at the Enterprise Sealy Station on August 28, 2023 in Sealy, Texas.

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Oil prices climbed to their highest level of the year this week, extending a rally that has put a return to $100 a barrel sharply into focus.

Indeed, some analysts believe crude prices could hit this milestone before year-end.

International benchmark Brent crude futures traded 0.3% lower at $93.46 a barrel on Friday afternoon in London, while U.S. West Texas Intermediate futures stood little changed at $90.09. Both Brent and WTI settled on their respective highest levels of the past year on Thursday. Both countries have said they will review their voluntary cuts on a monthly basis. Both countries have said they will review their voluntary cuts on a monthly basis.

Analysts at Bank of America have indicated they now believe oil prices could soon rally above $100.

“Should OPEC+ maintain the ongoing supply cuts through year-end against Asia’s positive demand backdrop, we now believe Brent prices could spike past $100/bbl before 2024,” analysts led by Francisco Blanch said Tuesday in a research note.

Tamas Varga of oil broker PVM said a jump toward the $100 milestone was “plausible,” citing production constraints from Saudi Arabia and Russia, upcoming refinery maintenance, the structural shortage of diesel in Europe, and a growing consensus that the current cycle of tightening will soon come to an end.

“Nonetheless, such a rally also entails renewed inflationary pressure,” Varga told CNBC on Friday. This was reflected, he said, in this week’s U.S. inflation data and the rise in consumer spending, which indicated that interest rates may stay higher for longer and could have a negative impact on both economic and oil demand growth.

“For this reason, I believe that any spike towards $100 will be short-lived,” he added.

‘A significant supply shortfall’

The International Energy Agency

the crude sector looks increasingly overbought in the near term and appears in need of a pullback.

“We do not join the $100 per barrel camp but will not rule out a relatively short period where Brent could trade above $90,” Hansen said in a research note published Sept. 8.

“From a technical perspective, Brent has been in a bullish uptrend since July and needs to hold support at $89 as a break may trigger long liquidation towards $87.5 from traders who bought the production cut extension news,” he added.warned Wednesday that Saudi Arabia and Russia’s production constraints would likely result in a “substantial market deficit” through the fourth quarter.

The world’s leading energy authority said in its monthly oil report that output curbs by OPEC and non-OPEC members of more than 2.5 million barrels per day since the start of the year had so far been offset by members outside the OPEC+ alliance — such as the U.S. and Brazil.

“From September onwards, the loss of OPEC+ production, led by Saudi Arabia, will drive a significant supply shortfall through the fourth quarter,” the IEA said.

Christyan Malek, global head of energy strategy and head of EMEA oil and gas equity research at JPMorgan, said he believes the price of oil is likely to trade in a range of $80 to $100 in the short term — and at around $80 over the long term.

“As we go into next year, it will be very dependent on how we see China evolve … what does the U.S. do? And how does shale respond?” Malek said Monday, noting the U.S. appears to have limited options if it is to try to drive oil and gasoline prices lower ahead of next year’s pivotal presidential election.

“I think for us one of the important data points for this year as a whole is that we tested $70. You have to test the marginal costs, we can all predict it, and we got there. We got to $70, and it bounced off so with that marginal cost, we’re looking at a much higher long-term price,” he added.

A lone pumpjack located in the middle of a large solar array outside of Bakersfield, Kern County, California.

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Not everyone believes oil prices are destined for an imminent return to $100, however. Ole Hansen, head of commodity strategy at Saxo Bank, says“However, the medium-term uptrend is still firm with trendline support near $85, potentially being the bottom of a new higher range supported by OPEC’s active management of supply. Hansen said in a research note published Sept. 8 that he does not support the $100 per barrel camp, but he will not rule out a relatively short period where Brent could trade above $90.