Crude Prices Could Hit $95 This Summer: 'Oil Is Fighting The Fed, Again'

In an environment marked by a combination of tight supply, escalating demand, and ongoing geopolitical tensions, oil prices are projected to surge, potentially reaching a peak of approximately $95 per barrel this summer.

This perspective comes from Francisco Blanch, a leading commodity and derivatives strategist at Bank of America, who has recently revised his outlook on the oil market in light of these evolving dynamics.

“Oil is fighting the Fed, again,” Blanch stated in a note published Wednesday. The analyst highlights that escalating fuel prices are influencing headline Consumer Price Index (CPI) trends, thereby potentially limiting the scope for central banks to implement rate cuts.

According to Blanch, the oil outlook is currently dominated by four forces:

• Persistently low inventories: Across the board, the oil complex is experiencing significantly low inventory levels, a situation that is contributing to upward pressure on prices.
• OPEC+ production decisions: The output cuts enforced by OPEC+ countries are serving to tighten supply in the global market.
• Geopolitical flashpoints: Escalating tensions in key regions, notably involving Iran, Russia, and Venezuela, not only threaten supply chains but also, paradoxically, stimulate oil demand through longer trade routes and reduced refining capacities due to infrastructure attacks.
• Economic growth: Robust growth figures are painting a picture of stronger-than-anticipated demand, particularly for the upcoming summer driving season.

In response to these developments, Blanch has adjusted his forecasts for Brent and West Texas Intermediate (WTI) crude oil, projecting average prices for 2024 at $86 and $81 per barrel, respectively, with a peak expected at around $95 per barrel during the summer months.

Central Banks’ Inflation Targeting Dilemma

Highlighting the influence of monetary policy on commodity prices, Blanch remarks, “we continue to believe that lower interest rates and easier financial conditions will support rising commodity prices into summer.”

Still, while rising energy prices complicate the Federal Reserve’s mission to lower interest rates, Blanch points out that central banks are presently more concentrated on curbing core inflation, which excludes the volatile sectors of food and fuel.

Nonetheless, the persistent inflation within the services sector across major economies remains a challenge. “A surprise surge in cyclical commodity prices could further firm up this trend,” Blanch warns.

US Energy Stocks React To Rising Oil Prices

With oil prices experiencing a surge of over 15% since the start of the year, U.S. energy stocks have led the way in performance across various equity sectors in the first quarter.

The Energy Select Sector SPDR Fund XLE is up 16% year-to-date, with the sector’s heavyweight Exxon Mobil Corp. XOM up by nearly 20%, breaking new record highs.

Leading the pack in the energy sector’s year-to-date performance is Marathon Petroleum Corporation MPC which has seen a remarkable 44% rally.

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Image generated using artificial intelligence with Midjourney.