Increasing geopolitical tension and the latest data on China's oil consumption may propel the already rising oil prices further upwards, Jefferies' Christopher Wood said in his latest 'Greed & Fear' note.
Oil price has begun to appreciate since the International Energy Agency increased its demand forecast and reduced its supply forecast recently, Wood said.
The latest data on China's oil demand shows a further increase, reflecting the pattern prevailing last year whereby China seemed to be increasing its reserves of oil even as the US was doing the exact opposite, the note said.
China's estimated oil demand increased by 6.1% year-on-year to 14.36 million barrels per day during January–February, the note said, quoting Bloomberg data. Meanwhile, the volume of oil processed in January-February rose by 3% year-on-year to a record 118.76 million tonne, it said.
"But perhaps the most significant issue as regards supply, assuming OPEC Plus can maintain its discipline, is what happens to US shale production."
All the major U.S. shale regions look to have peaked in terms of production except the Permian region, according to the note. Total crude oil production in the shale regions outside the Permian basin in February remains 20% below their peak of 4.54 million barrels per day reached in October 2019, the note said.
Apart from this the rising geopolitical tension could also trigger a further rise in the oil price, the note said. "It is the last thing the U.S. Government and the Federal Reserve want to see is a further rally in the oil price."
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