This isn’t a typo. The Brent crude oil price could rocket to as much as US$190 a barrel in 2025, according to JPMorgan Chase.
This might sound like an outlandish call but it will be sweet music to the ears of the shareholders of ASX energy stocks.
While the sector heavyweights have bounced strongly with the rest of the S&P/ASX 200 Index (Index:^AXJO) since hitting the bottom of the bear market three months ago, they are still trading substantially below their pre COVID-19 levels.
ASX oil stocks on cusp of supercycle?
This could be the time to be jumping back into the sector if JPMorgan’s prediction comes through.
Probability of surging oil price is rising
But the pandemic, which was one of the key factors that sent the oil price crushing, isn’t putting off JPMorgan. If anything, its analysts are doubling down on its call.
“The reality is the chances of oil going toward $100 at this point are higher than three months ago,” CNN quoted Christyan Malek, JPMorgan’s head of Europe, Middle East and Africa oil and gas research as saying.
That view stands in stark contrast to what’s happened in the oil market. A big drop in demand for crude as the world curtailed activity to stem the coronavirus outbreak is only one factor.
Crude oil price on slippery slope
A price war between major oil producers Saudi Arabia and Russia exacerbated the worsening situation and sent the WTI into negative territory for the first time ever in April.
While the oil glut seems to be easing, most do not expect the oil price to move much higher from here. The Brent oil price last traded at US$42.19 a barrel while the WTI price is at US$39.75 a barrel.
But JPMorgan thinks there’s a real chance Brent could surge five-fold in a “bull case” scenario as it sees the oversupplied market swinging into undersupply scenario starting in 2022.
Why oil could surge higher
This isn’t seen as the most probable outcome by the investment bank. All the stars will need to align for oil before it can head towards the US$200 mark and JPMorgan’s base case scenario is for Brent to hit US$60 a barrel instead.
But Malek told CNN that he thinks it’s even more likely now than before COVID-19 that the bull case outcome becomes a reality.
He was bearish on oil since 2013 but is now predicting that a very large supply-demand deficit will emerge in 2022 that could reach 6.8 million barrels a day by 2025.
“The deficit speaks for itself. That implies oil prices will go through the roof,” he said. “Do we think it’s sustainable? No. But could it get to those levels? Yes.”
Investors in oil-exposed ASX stocks will be cheering him on.