Bank of America Predicts Oil Prices to Settle Around $70 per Barrel with More Downside Risk Than Upside
Bank of America’s commodities team has shared a cautious outlook on oil prices, citing factors such as OPEC’s supply dynamics and non-OPEC production growth. Their base case scenario is $70 per barrel, but they see more downside risk due to OPEC’s spare capacity potentially covering any barrels affected by Middle East conflicts.
The key driver of this risk is the possibility of OPEC adding 2 million barrels per day to the market, along with expected non-OPEC supply growth of 1.6 million barrels per day. Global demand for oil is forecasted to grow by only 1 million barrels per day next year, according to BofA.
Bank of America’s strategists prefer gas-linked stocks in the current environment, especially midstream companies. They anticipate positive catalysts in 2025 as data center growth and liquefied natural gas (LNG) demand increase. The team believes the market is underestimating the free cash flow potential of their preferred companies, with potential payout increases of up to 50% by 2027.
Cheniere Energy is BofA’s top Buy-rated pick, with expectations of free cash flow exceeding $20 per share in the next three years. Other Buy-rated energy names include Kinder Morgan, Williams Companies, and Chevron, among others.
Analysis:
Bank of America’s forecast of oil prices settling around $70 per barrel highlights the potential risks and opportunities in the oil market. With a cautious outlook on OPEC’s supply dynamics and non-OPEC production growth, investors may need to consider the implications for their portfolios. The preference for gas-linked stocks and the potential for increased free cash flow in energy companies could present attractive investment opportunities for those looking to capitalize on the evolving market dynamics. It is essential for investors to stay informed and understand the factors influencing oil prices to make informed decisions about their finances.