CHARLOTTE, N.C.—After plummeting this spring during the pandemic, oil prices are set to recover by the first half of next year, according to a recent Bank of America report.
The impact of the market collapse on the nation’s energy industry will endure for years to come, as Business Insider reports. But Bank of America expects the industry’s growth model to change and that companies will be forced to focus on cash generation and modest growth.
The recovery is driven by a global drop in output, largely through an OPEC agreement to curb production and a steady increase in fuel demand, bank analysts said.
"It's hard to overstate the change we believe has taken place in the energy sector in the past six months," the report said, and those changes will impact energy investing. The nation’s oil and gas industry has been known for unbridled growth, and growth helped carry the country to energy dominance.
When the pandemic struck, it caused oil prices to fall by as much as 70% by April. Today, a barrel of Brent is down about 31% since the start of the year at $45 a barrel. Oil companies have lost billions in the months since.
While the first quarter of 2019 reflects a temporary crash in oil prices, it could be the most consequential quarter in a decade, the analysts said. “It is serving as the catalyst that forces a reality check on the business models that have decimated market confidence in the U.S. oils," they wrote, mentioning similar sentiments shared by executives in the exploration and production side of the industry.
Oil prices are recovering, and there's an "accelerated rebalancing of global oil markets," the bank said, which is set to drive the price of Brent to $60 a barrel by the first half of 2021. At the start of 2020, before the pandemic, a barrel sold for about $68.