Why are top banks betting on a recovery in oil

Oil will rebound in the fourth quarter, according to some major Wall Street banks, and despite growing concerns about a global economic slowdown, low inventories and continued demand are the basis for the
recovery.

JP Morgan forecasts that Brent crude in London will reach $101 a barrel in the final three months of 2022, Goldman Sachs Group expects $125 and Morgan Stanley is targeting $
95.
The global crude oil benchmark recently approached $
90.

The oil market has experienced a turbulent year, with the Russian-Ukrainian crisis, a series of sanctions to reshape energy flows, and the recent aggressive austerity adopted by the Federal Reserve to curb inflation
.
The Asia-Pacific Petroleum Conference (APPEC) in Singapore next week will focus on this year's equilibrium period and prospects for
2023.
The conference was a leading industry gathering, returning to in-person attendance for the first time since the outbreak of the
pandemic.

Crude oil prices fell more than 20 percent in the third quarter as macroeconomic concerns intensified and the Fed's rate hike pushed the dollar to record levels, creating a headwind
against commodities.
The next three months are likely to be equally challenging, as the EU will impose sanctions on Russian oil flows and will tighten sanctions, while the United States will lead a bold plan to limit Russian oil prices
.
Meanwhile, OPEC has hinted at supply
cuts.

Martijn Rates, global oil strategist at Morgan Stanley, said in an interview: "We have been very tense this summer, and every indicator shows that the market is very optimistic
.
The price increase is due to the recovery in demand after the COVID-19 pandemic, and our supply-side recovery is not fast
enough.
”

Nikhil Bhandari, co-director of natural resources and clean energy research at Goldman Sachs in the Asia-Pacific region, said it could mean the oil market is still in an unsustainable deficit
at current prices.
More tourism activities and more oil and gas transitions will lead to higher consumption
, he said.

As we all know, APPEC brings together a large number of oil traders, producers, refiners, analysts and brokers for daytime discussions and, traditionally, a series of glittering parties in the city-state's top restaurants and bars that last until the evening
.
Russell Hardy, chief executive of the Vitol Group, was one of the high-profile speakers this year, and the group will bring its reception back to the iconic Raffles Hotel
after the outage.

In addition to the near-term price outlook, the event will further focus on the energy transition, the growing energy crisis in Europe caused by Russia's cut-off of gas supplies, and the long-term consequences
of underinvestment in hydrocarbons.

Parsley Ong, head of energy and chemicals Asia at JPMorgan Chase, said, "Underinvestment
for many years.
In the U.
S.
, we don't see rigs high enough to offset the natural decreasing rate, wells that have been drilled but not yet completed are at their lowest level since 2014, and OPEC's spare capacity is very sparse
.
”

Supply constraints mean that as the world emerges from the recession triggered by the COVID-19 pandemic, reserves are cut to meet growing oil demand
.
This means that the market has no cushion to absorb more growth
.

Morgan Stanley's Martijn Rats said: "The consequence of a reduction in global inventories is that once demand picks up, prices will rise
again.
At present, demand has taken a step back, but the supply situation has not changed much, and the supply ceiling is not far at
all.
Once demand recovers, the market will face the same price pressure
again.
”

With oil prices fluctuating this year, typically $10 in a week, the futures market is not properly reflecting fundamentals, raising a chord of concerns
.
Among them, hedge fund manager Pierre Andurand described the market as having collapsed, while Saudi Arabia's energy minister, Prince Abdul Aziz bin Salman, pointed to the market disconnect, highlighting poor
liquidity.

JPMorgan's Ong said: "Fundamental factors indicate a deficit in the oil market, but prices do not necessarily reflect this deficit, one of the reasons is the strengthening
of the US dollar.
So, in this sense, futures markets may not adequately reflect the fundamentals of austerity
.
”

However, Morgan Stanley's Rats has taken a different approach, saying: "It's true that liquidity is quite low, so volatility is unusually high, however I don't think that's the case, the overall level of the price is out of touch
with the fundamentals.
" Brent crude oil prices are around $90, largely reflecting the fundamentals
.
So the futures market did not collapse
.
”