The physical market is tightening, and the “super sharp rise” theory of oil prices resurfaced

The Zhitong Finance App learned that the WTI crude oil futures price is currently close to 100 US dollars per barrel, and the Brent crude oil futures price is around 110 US dollars per barrel. William Blair Energy Research Analyst Neil Dingman believes that oil prices may usher in a “super surge” in the next step. However, Wall Street is not uniformly bullish; Goldman Sachs's latest target price is still lower than current oil prices.

Dingman said, “We're likely to see the kind of super surge that the CEOs of big oil companies say. I think it's definitely possible.” Dingman mentioned that oil company executives keep telling him that oil prices will have a new higher bottom for at least the next few quarters. He agreed with this: the mid-cycle price given by most analysts in the past was 70 to 80 US dollars per barrel, but now “probably closer to 80 to 90 US dollars,” and will gradually exceed 100 dollars.

Dingman explained, “Attacks on Iranian oil tankers are frequent, and freight costs have also reached a record high. The real problem is that the physical market is getting tighter”. He added that geopolitical and political events “have now caused actual physical events” and that temporary remedies are difficult to work: “Whether it is releasing crude oil from strategic oil reserves (SPR) or other temporary measures, it will be very difficult.”

America's strategic oil reserves have fallen to their lowest level since 1982.

The rise in oil prices is also reflected in asset performance. The energy selection industry SPDR Fund (XLE) has risen more than 50% this year. It is the best performing sector among the 11 sectors of the S&P 500 index, far exceeding the S&P 500 index's increase of about 12%. Since December 31 of last year, U.S. crude oil has risen by more than 70%, and the global benchmark Brent crude has risen by about 80%.

In terms of diesel, heating oil futures are the benchmark for diesel and have more than doubled this year. “I think we've seen record highs, and we'll see higher levels,” Dingman said. He meant “diesel, gasoline, domestic heating fuel”, and prices are likely to continue to rise as winter approaches.

This is bad news for consumers, but good news for US oil producers. Dingman said these producers “will continue to make huge profits.” Most of the companies he covered posted record free cash flows in the second quarter, and he expects new records in the third or fourth quarter.

Not all Wall Street agencies think oil prices are about to soar. Goldman Sachs raised the target price of Brent crude oil in December to 90 US dollars per barrel and the target price of US crude oil to 81 US dollars per barrel on Monday, all lower than current oil prices. Goldman Sachs believes that Brent crude can only reach $125 per barrel if oil infrastructure is damaged, shipping attacks intensify, or risk premiums persist.