Oil could snap back bigger and badder than ever
Reuters
That is according to Jodie Gunzberg, the global head of commodities and real assets at S&P Dow Jones Indices.
But we're not there yet.
"From a returns perspective the price of oil could snap back bigger than ever," she told Business Insider in an interview from the Milken Global conference earlier this month.
"There's a lot of inventory to work through overall, but the magnitude of this comeback could be really big because there's a lot of problems to work through."
Here's why: According to Gunzberg, we're experiencing a problem in the oil market unlike any other we've seen in recent memory. It's a dual problem, with a lack of demand as well as an oversupply.
She pointed out that oil most recently came back from a demand crisis in 2009, and after that the commodity returned 200% in two years.
When oil most recently came back from a supply shock, in 1998, it returned 34% in eight months.
Again, we now have both problems.
Started from the bottom
All that said, we're already seeing signs that oil prices have bottomed. First off, energy equities have started outperforming the bonds of companies in the S&P 500, which suggests that investors are more optimistic than they were and are willing to take on risk.
Additionally, while the oil price has been volatile in recent months, we've seen 15% jumps over three-day periods. That's something Gunzberg says we also see only at a bottom.
The question is how long it will take us to claw back up.
Goldman Sachs thinks it could be a long while. In a recent note, analysts said the rebalancing - that is to say the place where oil supply starts to even out with oil demand - has begun. But it's complicated.
"Importantly, while the physical barrel rebalancing has started, the structural imbalance in the capital markets remains large, with $45 bn of equity and bond issuance taking place in the US this year," the analysts wrote.
"As a result, we believe that the industry still has further to adjust and our updated forecast maintains the same 2016-2017 price level that we previously believed was required to finally correct both the barrel and capital imbalances, and eventually take prices to $60/bbl."
It will be a while, but prepare for the snap back.
- I spent $2,000 for 7 nights in a 179-square-foot room on one of the world's largest cruise ships. Take a look inside my cabin.
- Saudi Arabia wants China to help fund its struggling $500 billion Neom megaproject. Investors may not be too excited.
- One of the world's only 5-star airlines seems to be considering asking business-class passengers to bring their own cutlery
- From terrace to table: 8 Edible plants you can grow in your home
- India fourth largest military spender globally in 2023: SIPRI report
- New study forecasts high chance of record-breaking heat and humidity in India in the coming months
- Gold plunges ₹1,450 to ₹72,200, silver prices dive by ₹2,300
- Strong domestic demand supporting India's growth: Morgan Stanley