Oil prices could soar to $150 in a fully reopened world: Jefferies
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According to Christopher Wood, Jefferies, oil prices may rise “a lot higher”, given the global dependence on fossil fuels. They could reach $150.
“In a world that really reopens — which is a big ‘if’ — the oil price can go significantly higher,” Wood, global head of equity strategy at the investment bank, told CNBC’s “Street Signs Asia” on Wednesday.
In reference to China, he stated that “Oil reached more than $80 with much of Asia closed” and China’s border are still effectively closed. Beijing’s strict zero-Covid approach. Because of the severe supply shortages, an oil price that is really open could reach $150 per barrel.
The strategist stated that the “political assault” against fossil fuels has reduced the incentives to invest in this sector, in spite of its importance. He pointed out that fossil fuels accounted for 84% global energy demand.
“The problem for me isn’t the oil prices, it is the pandemic.” He said that the oil price will rise in an open world where nobody is investing in oil, but people still use fossil fuels.
Wood explained that “so oil can go even higher” and this could lead to inflation fears.
While no one is investing in oil, the rest of the world continues to use fossil fuels.
Christopher Wood
Jefferies Global Head Equity Strategy, Jefferies
Wednesday afternoon, Asia trading hours. International benchmark Brent crude futuresThey were around $71.90 per barrel U.S. crude futuresThey were about $68.50 per barrel
Oil saw its worst day of 2021 on FridayA global market crash, caused by the World Health Organization’s Thursday warningInformation about the Omicron Covid variety. As investors try to understand the impact of the new variant, which has more mutations that previous strains on oil prices, they have witnessed wild swings in the price of oil.
Wood explained that to him, “the only thing that will knock down the oil price is new lockdowns within the Western world.”
The global investor mood remains weak since the discovery of the Covid variation.
Fed outlook on inflation
Wood saw the future and predicted that inflation would be structurally greater than before the pandemic.
He stated that volatility could increase, even with increased vaccinations.
In the expectation of structural inflation rising, markets will be subject to tightening and tapering fears. Wood said: “It all comes down to how hawkish Fed really is going to be.”
U.S. Federal Reserve Chairman Jerome Powell saidAs the nation fights rising inflationary pressures, Tuesday’s central bank may end its bond-buying program sooner than originally planned. This could allow the Federal Reserve raise interest rates sooner than originally planned, but Powell cautioned that the tapering shouldn’t be taken as a sign of imminent rate increases.
“Personally, I believe … the Fed will talk a more hawkish game than they act,” Wood said. They will, in my opinion, remain fundamentally dovish.”
It is possible that they will suddenly start to tighten in meaningful ways, but this is very unlikely. The strategist for Jefferies said that if they decide to tighten in a meaningful way, I think markets will drop sharply.”
“I continue to believe that any kind of risk off move, the Fed will back off its tightening very quickly and move more in the direction of financial repression — by which I mean further severing the links between inflation and interest rates,” Wood said.
— CNBC’s Elliot Smith and Jeff Cox contributed to this report.
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