Bank of America warns: Oil shorts are stepping into the "bear market trap"!
Analysts at Bank of America warn that despite investors' pessimism about the oil market and near-record levels of short interest, this could potentially form a "bear trap." Analysts point out that the expected global GDP growth will drive energy demand, especially with the rise of artificial intelligence potentially accelerating electricity demand growth. It is projected that global GDP will grow by 3.3% by 2025, with energy consumption possibly increasing by 6 to 9 million barrels of oil. Rate cuts by the Federal Reserve could also stimulate oil demand. Despite potential supply disruptions due to tensions in the Middle East, investors remain bearish on energy
Due to concerns about oversupply in the market next year, investors are increasingly bearish on the oil market. However, analysts at Bank of America have stated that the pessimistic sentiment has set a "bear trap" for investors. This is because if global GDP grows as expected, energy demand may also increase. The "bear trap" refers to the dilemma faced by short sellers when the bear market reverses.
Analysts point out that due to concerns that OPEC+ plans to increase supply to a market already flooded with American oil, short interest in the oil market has reached near-record levels recently. However, investors should view the artificial intelligence boom as a signal of future demand growth.
In a report on Monday, they wrote, "Despite bearish concerns, we believe that with the arrival of the next productivity revolution, global energy consumption may accelerate."
They added, "It is important to remember that the upcoming conflict between artificial intelligence and climate change will revolve around energy."
Bank of America analysts estimate that as data center demand driven by artificial intelligence becomes part of the next "productivity revolution," U.S. electricity demand growth is expected to accelerate from 0.2% to 2% over the next seven years.
Analysts project that global GDP will grow by 3.3% in 2025, and as long as the global economy avoids a hard landing or trade war, energy consumption could increase by 6 to 9 million barrels of oil per day. This is equivalent to a 3% increase in global energy demand.
Analysts state that further easing of policy by the Federal Reserve through interest rate cuts may also help "significantly boost the world economy in the coming quarters." They expect the Fed to cut rates to below 3% by the end of next year, which they believe could stimulate demand for oil and cyclical commodities.
With escalating tensions in the Middle East, unexpected changes in oil supply could pose upside risks to analysts' price forecasts.
As investors turn bearish on energy amid Bank of America's forecast of increased energy demand, concerns about supply disruptions due to Middle East conflicts are growing, yet energy prices are still falling this year.
Meanwhile, after a series of production cuts over the past two years, OPEC+ plans to increase supply to the currently oversupplied oil market.
Analysts suggest that OPEC+ resuming supply and weak Asian demand could pose risks to the oil market next year. These factors, along with the possibility of global economic slowdown, present downside risks to their oil price targets.
The analysts wrote, "Trade wars, OPEC+ price wars, or an economic hard landing could temporarily push oil prices below $60 per barrel. However, reaching this level could quickly push the oil market towards balance and stimulate alternative demand in the power generation industry."