Oil prices are set to keep rising, according to analysts at Deutsche Bank, with the war in Ukraine stoking further what was already a tight market.
In a note, the bank said: “The Russian invasion of Ukraine has added risk and volatility to global and gas markets that were already showing clear signs of increasing underlying tightness.
“On inventory levels alone, we see US$90/bbl Brent currently justified, implying currently US$$20/bbl additional risk premium being factored in by markets (albeit understandably very volatile).”
Further out, Deutsche Bank said it is increasing its 2022and 2023Brent price assumptions by 20% and 14% respectively, to an average of $89.6/bbl and $81.5/bbl.
Gas forecasts this year go up by 113% and 129% respectively, to 190p/th and €79.4/MWh.
For companies producing gas and oil, this will translate into average earnings increases of 39% in 2022 and 28% in 2023 across the sector.
Deutsche Bank adds that these new assumptions are also based on pre-Ukraine war conditions as it views the recent spike caused by the invasion as something that might reverse quite quickly.
Shell's target price rises by 25% to 2,551p from 2,038p and is the 'top pick' with BP tweaked a little to 450p from 455p.
Both shares are on the bank's 'buy' list.
Two weeks ago, JP Morgan suggested that the oil sector is heading into a new supercycle and that the crude price would "normalise" at US$125 a barrel.
Brent crude today was changing hands at around US$117 a barrel.
Shell shares were up 3.2% at 2,071p and BP up 3.6% at 384.6, with reports that US bank Morgan Stanley (NYSE:MS) had also raised its investment stance on the sector.
-- adds detail, prices update --