Jeff Currie, the head of global commodities research at banking giant Goldman Sachs, has said current circumstances affecting the oil sector will likely result in a tighter market coupled with an upside risk in 2022.
Speaking during an interview on CNBC, Currie stated that a combination of factors, including years of poor returns and Environmental, Social, and Governance (ESG) issues, will likely translate to worry among investors when approaching the oil market.
According to Currie, the market is further complicated by the high volatility that appears to worsen amid emerging coronavirus variants. He notes that the circumstances deprive the market the much-needed capital.
Furthermore, Currie believes that policy-related factors are likely to work against the oil market.
“What we’re seeing is a lack of capital to be able to grow the supply base. Particularly when we look out into next year, when it’s all likelihood, OPEX spare capacity will be exhausted. The likelihood of an I Iranian deal is declining, So it starts to look pretty tight into 2022, which creates a lot more upside risk, particularly given where the forward prices and even the spot prices are today,” said Currie.
‘Expect high volatility in 2022’
He added that the market is likely to undergo further volatility in 2022, which will bring risk to the oil market.
Currie further suggested that the current positive return in the oil market is only temporary due to the reaction amid the Omicron variant.
He acknowledged that the oil market negatively reacted to the variant, but after it emerged that the new strain was mild, initiatives taken by the market paid off, restoring stability.
Currie also stated that dealers resolved to sell extensively to cover positions as a reaction to the variant, which resulted in a violent upside. He further projected that oil might top $90 a barrel once the market stabilizes.