Fears of slowing oil demand, a global crude glut and Middle East woes spooked the market at the beginning of the year, but now, a change of heart could guide oil to $50, according to a strategist at Canadian investment bank RBC Capital Markets.
“[The] market’s psychology has changed,” Helima Croft, RBC Capital Market’s head of global commodities strategies, told CNBC.
“Everyone is thinking about the recovery to $50,” she said, adding that OPEC’s freeze talk has influenced market sentiment. International benchmark Brent went just slightly above $41 a barrel in intraday trading Monday before settling at $40.84, up more than 5%; West Texas Intermediate also rose more than 5% to settle at $37.90 on the day.
While $40 oil seemed farfetched to some just a month ago the case for $50 oil has been gaining momentum. A few weeks ago, Mike Wittner, head of US commodities research at Societe Generale, said fundamentals support $40 oil, and that by yearend, the market will see $50 oil.
The psychology behind the current boost in oil prices, according to Croft, is that OPEC producers have realized they need $50 oil, and are worried that lower oil prices would elicit further credit ratings downgrades and expedite austerity measures. In Croft’s view, Iran is the only OPEC country that is not concerned about a low-price environment. “The only country in OPEC that I think year on year is going to have a better year is Iran.”
“That gives us the comfort that we should be reaching $50 by the end of the year,” she said.
