Oil prices recently traded at less than $0/barrel. In 2008, prices were over $120/barrel. What is going to happen to prices for oil in the future? Joe Wallace examines the market in The Wall Street Journal, writing:
Some think the bust will set in motion a boom, predicting that investment in oil-and-gas production will dry up and propel crude prices back above $100 a barrel.
“That funding pressure is going to be massive. It’s going to be really difficult for some of the producers to produce,” said Trevor Woods, chief investment officer of Ohio-based hedge fund Northern Trace Capital. “We could hit $150 pretty easily by 2025.”
Others say the pandemic will sap fuel demand after the threat of contracting coronavirus has faded, cementing an era of cheap oil.
The debate over the long-term direction of the world’s most important energy source is thorny. Oil markets have dozens of moving parts, making them hard to forecast.
In the long run, most analysts agree prices should gravitate to a level at which energy producers profit from making just enough crude to match demand. Covid-19 has made that calculation more complex. Investors are unsure whether the pandemic will permanently alter transport and consumption patterns, or expedite the move toward cleaner energy sources.
Oil prices staged a quick recovery after turning negative in late April, boosted by a pickup in China’s economy as well as output cuts by the Organization of the Petroleum Exporting Countries, Russia and producers in North America. The rally has stalled since new coronavirus cases threatened to hit fuel demand in Southern and Western U.S. states. West Texas Intermediate futures, the benchmark in U.S. oil markets, have traded at around $40 a barrel since late June.
The case for soaring prices rests on asset managers and banks declining to bankroll necessary investments in new and existing oil wells, leading to a shortfall of crude.
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