Oil prices could skyrocket to $150 a barrel next year, and underinvestment in the industry could mean tight supply for the next decade, a JPMorgan energy strategist warned.
The bank estimates that oil could stick around $80 a barrel next year in event of a recession. But if supply grows tight, prices could easily soar to $150 a barrel, based on factors like OPEC+ falling short of its production targets, slowing US shale production, and rising demand for oil.
Much of that supply tightness could be fueled by underinvestment in the industry, which is “comparatively starved of capital” despite oil prices rising 40% higher this year, according to JPMorgan’s global head of energy strategy Christyan Malek.
“Oil is where we see the greatest need for incremental investment, both in sustaining the existing production base as well as growing it … while we are seeing the recognition of the need for investment into oil and gas, it hasn’t translated yet to actual additional spending,” Malek said in an interview with S&P Global on Wednesday, estimating that investment in oil will fall short by $300 billion through 2030.
It spells trouble for energy markets, considering that demand at the start of the next decade is expected to grow 7.1 million barrels a day above levels seen in 2019. That translates to an overall supply shortage of 700,000 barrels a day in 2030, which will likely keep driving prices higher.
Fear of undersupply has been voiced by other experts in the industry. OPEC+ previously said the cartel was not to blame for high oil prices, as that has been caused by chronic underinvestment in the industry.
And underinvestment could be one of the reasons why OPEC+ decided to slash its production by 2 million barrels a day starting November, Malek said, as that production cut could fuel more investment in energy markets.
The production cut also signals some confidence that oil will abide by the forecast of $80 a barrel – although that will be contingent on whether investment will fuel enough growth and beat supply headwinds in the industry.
“[OPEC’s role] is not just meeting demand today, but incentivizing the market to invest in enough supply to meet demand in the future too,” Malek added.
