Oil price bull run continues, but are its days numbered?

• Crude oil price breaks $70 per barrel.
• Analysts split over oil price forecasts in light of Iran’s nuclear deal.
• Increased pressure from climate activists could end long-term bull run.
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The Brent crude oil price was up 4.3% during the week beginning 31 May from $68.95 to a high of $71.81 on 2 June. Although the price per barrel dropped to $71.42 in the early hours of 4 June, the commodity remains bullish. With Covid-19 restrictions easing and economies reopening, the Organization of the Petroleum Exporting Countries (OPEC) is gradually returning to pre-pandemic production levels. The immediate plan is to release 2 million barrels per day by July.

What can we expect from oil prices in the short term?

These factors have already put the crude oil price above recent forecasts. The US Energy Information Administration (EIA) released its short-term outlook on 11 May 2021. Analysts put forward an oil price forecast of $65 per barrel by Q2, and an average of $61 per barrel by the end of the year. Those prices are well above last year’s figures. Oil was trading at an average of $40 in June 2020. By those measures, the recent surge suggests that Brent crude is on its way back to full strength.

However, even with the price of oil reaching its highest point for more than two years, the outlook remains uncertain. Economies may be returning to some semblance of normality but Covid-19 variants remain a concern. Another wave of infections could negatively impact crude oil price futures. There are also concerns that Iran’s impending nuclear deal could affect the price per barrel. If nuclear sanctions are lifted on the Arab nation, some analysts believe it could push oil prices higher, others disagree.

How will Iran’s nuclear deal affect the crude oil prices?

Analysts at Goldman Sachs believe a successful nuclear deal between Iran and the US et al could push the international benchmark for oil to $80 per barrel by Q3. In contrast, a crude oil price forecast from Morgan Stanley predicts the opposite. Analysts there see $70 as the current price cap and are forecasting a slight retraction down to $65 during the second half of 2021. Conflicting forecasts are nothing new in the oil market. However, the current uncertainty may be a sign of things to come.

Renewables remain the sword of Damocles for some. Chief executive of Total, Patrick Pouyanné, recently confirmed that the energy company would rebrand as TotalEnergies. The rebranding is part of a move to become a ‘green energy major’, according to Pouyanné. However, diversifying appears to be as much of a desire to embrace renewables as a necessity. A court ruling in the Netherlands against Royal Dutch Shell has shown that pressure on energy companies to cut emissions is increasing.

Climate change pressure heating up

Shell has been ordered to reduce its carbon emissions by 45%, compared to 2019 levels, by 2030. Total has promised a similar drop in emissions by 2050, but the latest news could put pressure Pouyanné to expedite the process. Indeed, this pressure has been compounded by news that an activist fund is expected to take a third seat on ExxonMobil's board.

What appears to be growing concerns for energy companies could have a long-term impact on the crude oil price. Cutting emissions and investments in green energy will reduce the demand for oil. This, combined with the continued rise of electric cars, could cause another oil price crash. Thus, while the market is currently enjoying a bull run, the events of 2020 may be a sign of what’s to come rather than a distant memory.

Can the oil price bull run last forever?

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