Bank of America Forecasts Oil to Reach $90 a Barrel

Global oil prices are poised to surge, with Brent crude surpassing $83 a barrel and potentially reaching $90 by early 2024, warns Bank of America’s commodity research team led by Francisco Blanch. This prediction raises concerns for the stock market, which has recently been experiencing a positive trend following the Federal Reserve’s policy decision and upbeat corporate earnings. However, analysts urge investors to remain cautious as rising inflationary pressures and higher oil prices could disrupt the current favorable economic scenario.

The S&P 500 has been on track for a fresh 15-month high, and the Dow Jones Industrial Average recently marked its longest winning streak since 1987. Furthermore, the market volatility gauge, the CBOE VIX index, sits at historically low levels, indicating high investor confidence. Despite this positive sentiment, experts warn that this is precisely the time when traders should be vigilant about potential threats that could harm the current benign market conditions.

Bank of America’s analysis suggests that the factors previously suppressing oil prices, such as rising interest rates and subdued oil consumption, may be losing their grip. The research team projects a substantial tightening of oil markets over the next 18 months, leading to a decline in global oil stocks. Contributing to this imbalance, OPEC is expected to implement further output curbs, and Russia plans to reduce exports in response to the western-imposed oil price cap. The strategic petroleum reserve in the United States, which was used to cap global energy prices, now requires refilling, further indicating the potential for an oil price rally.

While the decline in commodity costs has been a factor in lowering headline inflation measures, the resurgence in energy and food prices driven by OPEC’s and Russia’s actions could lead to unexpected rate hikes. Investors are closely watching the Federal Reserve, with markets pricing in a two-thirds possibility of interest rates remaining in the 5.25% to 5.5% range this year. As oil prices continue to rise, investors and traders are advised to keep a close eye on inflation trends and potential market volatility in the coming months.