Oil prices could climb to $ 150 in a fully reopened world: Jefferies

Oil prices could rise “much more” from current levels given the world’s heavy reliance on fossil fuels and could reach $ 150, said Christopher Wood of Jefferies.

“In a world that is really reopening – which is a big ‘if’ – the price of oil can rise dramatically,” Wood, global head of equity strategy at the investment bank, told Street Signs Asia on Wednesday. “from CNBC.

“Oil has passed $ 80 with much of Asia closed,” and China’s borders are still closed, he said, in reference to Beijing’s strict zero Covid approach. “In a truly completely reopened world, the price of oil could reach $ 150 because the supply constraints are dramatic.”

The “political attack” on fossil fuels in recent years has removed the incentive to invest in the sector despite its continued importance, the strategist said, noting that 84% of global energy demand last year was met by consumers. fossil fuels.

“The problem for me is not the price of oil, the problem is the pandemic. The price of oil will rise in a fully reopened world because no one is investing in oil but the world is still consuming fossil fuels,” did he declare.

“So oil can go much higher and that can certainly make the fear of inflation worse,” Wood said.

No one invests in oil, but the world still consumes fossil fuels.

Christophe Bois

Global Head of Equity Strategy, Jefferies

On Wednesday afternoon, during Asian trading hours, international benchmark Brent crude futures were around $ 71.90 a barrel, while U.S. crude futures were around $ 68. $ 50 per barrel.

Oil had its worst day of 2021 on Friday amid a global market rout, triggered by Thursday’s warning from the World Health Organization regarding the omicron Covid variant. Oil prices have seen wild swings between positive and negative territory since, as investors seek to clarify the economic impact of the newly identified variant which has many more mutations than previous strains.

“For me the only thing that will really bring the price of oil down is the new blockages in the western world, which is why the oil was corrected when we saw the news of the new variant,” said Wood.

Investor sentiment remains generally fragile since the new variant of Covid was identified.

Inflation outlook and the Fed

Looking ahead, Wood predicted that inflation is likely to end up being structurally higher than it was before the pandemic.

There could be more volatility to come, unless there are “really negative results” on Covid, even as vaccination efforts intensify, he said.

The expectation of higher structural inflation to come means that markets will be at the mercy of tightening and lessening fears, Wood explained: “It really depends on how hawkish the Fed is. “

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U.S. Federal Reserve Chairman Jerome Powell said on Tuesday that the central bank could end its bond buying program earlier than initially expected as the country battles mounting inflationary pressures. This could open the door for the Federal Reserve to raise interest rates sooner, although Powell stressed that the cut should not be taken as an indication of impending rate hikes.

“Personally, I think… the Fed will talk about a more hawkish game than it acts,” Wood said. “In my opinion, they will remain fundamentally accommodating. “

“If they suddenly decide to start tightening significantly, which is a big if. But if they do, then I think the markets are going to come down sharply,” the Jefferies strategist said.

“I still believe that any kind of risk move the Fed will back off very quickly from its tightening and move more in the direction of financial repression – by that I mean a further break in the links between inflation and rates. ‘interest,’ Wood said.

– CNBC’s Elliot Smith and Jeff Cox contributed to this report.

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