[Click eStock] "Oil Prices Rising Rapidly... Possible to Surpass $100 Next Year"

Daishin Securities forecasted on the 8th that "oil prices could rapidly rise and surpass $100 per barrel next year."

[Image source=Yonhap News]

Jinyoung Choi, a researcher at Daishin Securities, first mentioned seasonal factors regarding the rise in oil prices. He explained, "With the driving season approaching, full-scale cooling demand has begun," adding, "From April to September every year, cooling-related oil demand surges sharply due to high temperatures." He further analyzed, "The voluntary production cuts by the Organization of the Petroleum Exporting Countries Plus (OPEC+), the cancellation of new projects by Saudi Aramco, and favorable oil demand forecasts from countries struggling to transition to electric vehicles (EVs) are intensifying concerns about future supply and demand."

Although a favorable environment for oil prices has been created, U.S. oil production has been slowing down since the end of December. Researcher Choi stated, "Drilled but uncompleted wells (DUCs) have reached their limit," explaining, "As part of the fracking delay strategy, DUCs require an average of 1 to 1.5 months from the final fracking process to crude oil production. Since June 2020, 50% of DUCs have been depleted, and the remaining DUCs face profitability issues as their breakeven point (BEP) exceeds an average of $85 per barrel."

Some view policy changes due to former President Trump’s election as a variable. Since Trump is favorable to the fossil fuel industry, there are predictions that the current structural supply shortage could be resolved. Researcher Choi pointed out, "The problem is the Inflation Reduction Act (IRA), a tax increase bill that blocks investments by U.S. oil development companies," adding, "This bill includes raising royalty rates on oil and gas development on federal lands, as well as increasing lease bonds and state bonds under the pretext of managing aging wells."

He continued, "Considering the evenly split composition of the U.S. Senate between Republicans and Democrats, the IRA is likely to be reformed rather than repealed," adding, "Measures such as resuming crude oil leasing programs may be pursued, but it will take a long time before oil development companies make full-scale investments. Therefore, oil prices are expected to trend upward toward $100 per barrel next year."