Veteran oil consultant says $100 oil is in sight as China takes to the skies
Gary Ross, a seasoned oil consultant turned hedge fund manager at Black Gold Investors LLC, believes that oil prices have the potential for further upside due to two key factors: strong travel demand in China and constrained supply from the OPEC+ alliance.
Ross points to the resumption of domestic flights in China, which have already surpassed 110% of their pre-pandemic levels. This resurgence in air travel indicates a robust recovery in the travel and aviation sectors, reflecting the broader economic rebound in China.
Additionally, Ross notes that long-distance road travel in China is still predominantly reliant on gasoline-powered cars. This reliance on gasoline for transportation implies sustained demand for crude oil, especially in the context of a growing and mobile Chinese population.
On the supply side, the OPEC+ alliance has been maintaining a policy of production constraints, which has helped support oil prices. The group has been deliberate in managing supply to prevent oversupply and maintain stability in the global oil market.
These factors combined—strong travel demand in China and disciplined supply management by OPEC+—create a conducive environment for potential upside in oil prices. However, the oil market remains influenced by various geopolitical, economic, and environmental factors, making it subject to fluctuations and uncertainties. Investors and market participants closely monitor these dynamics to assess the future direction of oil prices.
Gary Ross anticipates a significant increase in jet fuel demand in China, with a potential surge of approximately 500,000 barrels per day (bpd) for jet fuel alone. This projection underscores the strength of the recovery in the aviation sector in China, where domestic flights have already exceeded pre-pandemic levels. The rebound in air travel, coupled with increasing mobility and economic activity, is driving demand for jet fuel.
The overall oil market has experienced notable price increases, with Brent oil futures surging by nearly a quarter since late June. This price surge has been attributed to deep supply cuts by major oil-producing nations such as Saudi Arabia and Russia, as well as reduced output by other producer nations. Additionally, broader financial markets are reflecting reduced risk of recession in key economies, including the United States.
Gary Ross suggests that Brent oil futures are likely to continue trading within a range, with a projected range of between $90 and $100 per barrel by the end of the year. As of the time of the interview, Brent oil stood just below $89 per barrel. These price expectations are influenced by various factors, including supply dynamics, demand trends, geopolitical developments, and economic conditions, and they provide valuable insights into the outlook for oil markets in the near term.
Gary Ross anticipates a significant increase in jet fuel demand in China, with a potential surge of approximately 500,000 barrels per day (bpd) for jet fuel alone. This projection underscores the strength of the recovery in the aviation sector in China, where domestic flights have already exceeded pre-pandemic levels. The rebound in air travel, coupled with increasing mobility and economic activity, is driving demand for jet fuel.
The overall oil market has experienced notable price increases, with Brent oil futures surging by nearly a quarter since late June. This price surge has been attributed to deep supply cuts by major oil-producing nations such as Saudi Arabia and Russia, as well as reduced output by other producer nations. Additionally, broader financial markets are reflecting reduced risk of recession in key economies, including the United States.
Gary Ross suggests that Brent oil futures are likely to continue trading within a range, with a projected range of between $90 and $100 per barrel by the end of the year. As of the time of the interview, Brent oil stood just below $89 per barrel. These price expectations are influenced by various factors, including supply dynamics, demand trends, geopolitical developments, and economic conditions, and they provide valuable insights into the outlook for oil markets in the near term.
Gary Ross shared several insights and observations related to the oil market:
1. Substantial Stockpile Draws with OPEC+ Extension: Ross anticipates significant reductions in stockpiles if the OPEC+ alliance extends its production cuts by 1 million barrels per day. Such a move by OPEC+ would likely lead to a reduction in global oil inventories, potentially impacting oil prices.
2. G-7 Nations May Adjust Russian Oil Prices: According to Ross, G-7 nations may consider raising the cap on Russian oil prices if deemed necessary to maintain the flow of Russian oil. This suggests that geopolitical factors and diplomatic negotiations could influence the pricing and availability of Russian oil on the global market.
3. Tight Product Markets Due to Unplanned Outages: Ross highlights the likelihood of tightness in product markets due to a significant number of unplanned outages throughout the year. These outages have resulted from various factors, including extreme weather events such as the freeze in the United States, labor strikes in France, and issues stemming from heatwaves. These disruptions can lead to supply shortages and affect the availability and pricing of oil products.
These insights underscore the complexity and dynamic nature of the global oil market, which is influenced by a wide range of factors, including production decisions by major oil-producing nations, geopolitical developments, and unexpected supply disruptions. Ross’s perspective offers valuable insights into potential market trends and challenges that could impact the oil industry in the coming months.
