Against the backdrop of the supply gap, Wall Street is shouting that oil prices will be high for a long time

While the U.
S.
shale gas boom has brought long-term and low-priced oil to the market, the current focus on climate change and declining willingness to invest in fossil fuels has led to an increase in demand for oil while supply has not increased, and producers are also facing spending pressures, resulting in a structural underinvestment
in new products.
As a result, oil prices will remain high for a long time, and some Wall Street commodity trading departments have reached a consensus that the long-term price of oil prices is expected to rise by $10 or more
.

Analyst opinion

Among the banks that support oil prices to remain high for longer, Goldman Sachs expects crude oil prices to reach $85/b in 2023, Morgan Stanley raised its forecast price by $10 to $70/b this week, and BNP Paribas expects crude prices to approach $80/b
in 2023.
In addition, other banks, including Royal Bank of Canada, are talking about the oil market opening a structural bull market
.

These predictions imply that oil will become more expensive
.
High oil price expectations are supporting Royal Dutch Shell (RDS.
A.
US) and BP.
US) and other large international oil companies with hundreds of billions of dollars in stock valuations
.

At the same time, investors' desire to lend is also waning
.
Last week alone, France's largest banks said they would limit financing
in the shale oil and gas sector starting early next year.
In addition, Ecuador had to double the number of banks that could provide credit guarantees to them
, as financial institutions were reducing their investments in crude oil.

Of course, not everyone supports the view
that oil prices will remain high.
A Citigroup report this month noted that crude oil below $30 and above $60 appears unsustainable in the long run, including a note by analysts at the bank that could add 7 million barrels per day of additional supply
if oil prices remain above $50.
In the medium term, however, cost indicators have been pointing to a value range
of $40-$55 per barrel.

Crude oil supply gap

In fact, the concept of a supply gap is not new
.
Since the 2014 oil price crash, analysts have been discussing how underinvestment could lead to demand exceeding supply
.
However, the collapse in energy prices caused by the coronavirus pandemic, combined with the focus on climate issues, has made things look different
this time.
While the current global oil rig count may have recovered from last year's low, it is still down more than
30% from pre-pandemic levels.

Oil supply and demand trends seem to be shifting, especially given the changes in the United States in recent years, which has in fact become a wobbly producer
.
On the one hand, listed U.
S.
shale companies remain constrained in terms of growth, for example, when EOG Energy (EOG.
US) fell sharply in February when it said it planned to increase production
.
Since then, few crude oil producers have made similar statements
.

In addition, the impact of the decline in oilfield production is becoming more and more obvious
.
In November, the Permian Basin was the only onshore U.
S.
field to see a significant year-over-year increase in production
.
According to the U.
S.
Energy Information Administration, production from other fields is either flat or falling
.

Similarly, while some major OPEC+ producers have excess stocks that can be tapped into next year, others, including Nigeria and Angola, are already showing signs
of slowing output.

summary

With investment in fossil fuels dwindling, there is still a gap
in crude oil supply, even if demand does not peak anytime soon.

The International Energy Agency said earlier this month that investment in fossil fuels would not be enough to meet demand if it continued to grow now
.
The agency expects oil demand to begin to decline
only in 2030 under current policies.

However, Morgan Stanley expects that oil supply may stop expanding by 2025, resulting in a large gap
.
Martijn Rats, an analyst at the bank, said that in the next decade, oil demand will exceed 100 million barrels per day, but on the supply side, at the current level of investment, the supply level will not reach the level
of demand.