Oil prices could hit $120 per barrel in June before heading back to earth as travel demand rebounds, Bank of America says

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Oil prices could hit $120 per barrel in June before heading back to earth as travel demand rebounds, Bank of America says
Antara Photo Agency/Reuters
  • Oil prices could surge 32% to $120 per barrel by June as travel demand rebounds, Bank of America said in a Tuesday note.
  • Higher demand for jet fuel, combined with low inventories and geopolitical tensions could send the commodity to levels not seen since 2012, the bank said.
  • But such a surge would be temporary, with prices reverting back to $80 per barrel in the second half of the year, according to the note.
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The ongoing surge in oil prices could continue into the middle of this year as travel demand rebounds, Bank of America said in a Tuesday note.

The firm said Brent crude could jump 32% from current levels to $120 per barrel, which would represent its highest level since the commodity's heightened levels in 2012.

Oil prices are up more than 350% from their 2020 pandemic lows, with Brent crude trading at $90.74 a barrel on Tuesday, its highest level since 2014.

"The combination of vaccines and prophylactics suggest that COVID-19 could soon become endemic," BofA said, adding that better treatments and reduced uncertainty surrounding the virus will spark a period of economic normalization.

In particular, a rebound in travel is likely as COVID-19 recedes, which should spark higher demand for jet fuel, the note said. That alone could spur higher oil prices, as a bulk of the fossil fuel is used for transportation. Daily TSA checkpoint travel numbers illustrate that there is still room for travel to recover as the virus recedes, as the most recent data is still 26% below pre-pandemic levels.

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"Higher demand, falling spare production capacity, low oil inventories, and rising geopolitical tensions point to Brent hitting $120 per barrel by the middle of this year before reverting back to $80 per barrel in the second half," BofA said.

Energy investors are keenly focused on the intensifying standoff between Russia and Ukraine, which is thought to have driven some of oil's recent gains. Oil prices are already up about 17% year-to-date.

But holding back oil's ability to sustain a move above the $100 price level is a strengthening US dollar, which is up about 7% over the past year. "A weaker USD is necessary for oil to sustain triple digit prices," BofA said.

The bank sees potential for a weaker dollar going forward if the Federal Reserve pulls an unexpected dovish shift, or if China gets more aggressive with its monetary easing policies.

But expectations remain for the Fed to raise interest rates at least four times this year, so strength in the US dollar could continue, adding weight to BofA's call that any surge in oil prices will likely be short lived.

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