NYPPEX Expects Oil To Exceed $100/Barrel In 2022

Secondary Private Equity Market Commentary 
by Laurence G. Allen

NYPPEX, one of the world’s leading providers of secondary private equity liquidity, today announced it expects Brent oil to exceed $100/barrel in 2022.

NYPPEX believes the Natural Resources sector is at the beginning stages of a 10-year secular trend characterized by higher prices for commodities driven by ongoing demand/supply imbalances.

NYPPEX believes this is an opportune time for alternative fund investors to evaluate their portfolio allocations to Natural Resource strategies, such as Renewables, Metals & Mining, Infrastructure, Real Assets, Growth and Energy.

Oil Price Forecast 2021-2050

The U.S. Energy Information Administration (“EIA”) estimates that global demand for oil was approximately 99.6 million barrels per day in September 2021, which is an increase of approximately 4.5 million barrels per day compared to September 2020, and lower by 2.1 million barrels per day compared to September 2019.

Year to date through September 30, 2021, the oil supply shortfall versus global demand has averaged approximately 900,000 barrels per day according to Bank of America.

The EIA projects Brent oil will reach $134/barrel by 2040 as cheap oil sources will have been exhausted, making it more expensive to extract oil.

By 2050, the EIA projects Brent oil will reach $185/barrel.

In Europe, natural gas prices have increased over 300% in less than 1 year from approximately $1.75 in May 2020 to $5.35 in February 2021 (dollars per million btu).

NYPPEX believes it is important to note that future oil prices will depend greatly on innovations in energy, government policies, transportation and other industry trends as societies work to become less fossil fuel dependent.

Natural Gas Prices Year To Date - Per CNBC

Factors Driving Oil Prices Today

NYPPEX believes that in the years before COVID, oil prices had a relatively predictable seasonal swing. In the spring, oil prices typically increased based on expectations for greater summer vacation driving. Once demand peaked, prices dropped in the fall and winter.

NYPPEX believes that today, oil prices are more volatile, and driven by the following factors:

1. Decline in U.S. Oil Supply

NYPPEX believes that COVID, natural events and government policies have adversely affected U.S. oil supply. For example, the U.S. experienced a decline in oil production following Hurricane Ida in September 2021 which forced the shutdown of more than 9 U.S. refineries.

2. Decline in OPEC Oil Supply

In 2020, the Organization of Petroleum Exporting Countries (“OPEC”) cut oil production due to lower demand during the COVID pandemic. OPEC has gradually increased oil output through 2021.

3. Asian & European Countries Increase Oil Purchases

NYPPEX believes that Asian countries typically relied on coal to generate power. However, recent coal shortages have caused some Asian countries to significantly increase their purchases of natural gas and oil.

In China, electricity shortfalls caused by high coal prices has led local officials to curtail hours at some factories, affecting the production of semiconductors and other key exports.

On Friday, October 15, 2021, Brent oil, the global benchmark, topped $85/barrel, its highest level in 3 years.

4. Decline in Global Oil Inventories

NYPPEX believes that due to the above factors, more countries are being forced to draw down their oil reserves.

Investment Trends In Energy

Investment Capped In Oil And Gas Exploration By Paris Climate Agreement

Investment in global oil and gas exploration, excluding shale, averaged approximately $100 billion a year from 2010 to 2015. However, after the 2015 crash in oil prices, investment declined to approximately $50 billion a year according to Rystad Energy.

Including shale, investment in global oil and gas exploration in 2021 is estimated to be approximately $356 billion or 26% lower than pre-COVID pandemic levels according to the EIA.

That level is the maximum allowable investment per year in fossil fuels for the next 10 years under the Paris Agreement on Climate Change. After that 10 year period, the level of annual investment in oil and gas exploration is required to decline further.

Investment In Renewable Energy Shortfall

NYPPEX estimates that to meet global energy demand, investments in clean energy need to grow from approximately $1.1 trillion in 2021 to $3.4 trillion per year until 2030, which would advance technology, transmission and storage.

NYPPEX believes the world isn’t yet investing enough to meet its future energy needs. Uncertainties over government policies and demand create an uncertain period ahead, and likely, an increase in prices.

Investment In Complementary Sectors

NYPPEX believes that higher investment in renewable energy such as wind and solar, will also require spending in other sectors such as mining to produce and refine the raw materials needed for wind turbines, solar arrays (connected panels) and utility-scale battery storage.

California: A Case Study

NYPPEX believes that the policies created by the State of California illustrate the hurdles that governments now face in balancing their energy needs with green initiatives.

The California Public Utilities Commission has ordered the state’s utilities to buy a significant amount of renewable energy, battery storage and other carbon-free resources which together are estimated to account for approximately 33% of California’s forecast for peak summer demand.

Further, California is in the midst of closing numerous fossil-fuel power plants to help decarbonize its power grid by 2045, as its state law now requires.

Supply Chain Issues

NYPPEX believes that supply chain issues will constrain how quickly the world can increase wind and solar power.

Most solar arrays are currently produced with energy from coal-fired power plants in China, which supply more than 75% of the world’s polysilicon used in solar panels.

Weak 5-Year Historical Returns In Natural Resources

NYPPEX believes that weak 5-year returns in Natural Resource private equity funds, has adversely effected new capital investment in 2021.

For the period 2015 to 2020, Natural Resource private equity funds worldwide are estimated to have generated a median annual return of only 8.2% and investment multiple of 1.23x.

On the other hand, Buyout funds worldwide are estimated to have generated a median annual return of approximately 17.4% and investment multiple of 1.60x for the comparable period, according to Preqin. Note: Assumes 2015 vintages for Natural Resource and Buyout funds.

In conclusion, NYPPEX believes that given current trends in the Natural Resources sector, this may be an opportune time for alternative fund investors to evaluate their portfolio allocations to Renewables, Metals & Mining, Infrastructure, Real Assets, Growth and Energy.

 

For more information, please visit www.nyppex.com or contact inquiries@nyppex.com or call       +1 (914) 305-2825.

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About NYPPEX Holdings

NYPPEX Holdings operates a global private marketplace that provides price data and the opportunity for qualified investors to access secondary liquidity in alternative investment funds in a fair and ethical manner.

Its clients include alternative investment funds, financial institutions, endowments, foundations, institutional investors, family offices, private clients and their respective advisors worldwide.

Since 2004, the NYPPEX QMS™ has been formerly recognized by the U.S. Internal Revenue Service as a Qualified Matching Service for private partnerships though a private letter ruling under Internal Revenue Code §1.7704.

In 2014, the NYPPEX (Shanghai) Investment Consulting Co. Ltd. was among the first foreign financial firms approved as members into the Shanghai Free Trade Zone (FTZ), along with Oaktree Capital, Citadel and Man Group. Among its features, the Shanghai FTZ permits yuan convertibility and unrestricted foreign currency exchange, and a tax-free period of 10 years for the businesses in the area.

Its private securities are privately offered to qualified investors through NYPPEX, LLC and only in jurisdictions were permitted. NYPPEX is regulated in the U.S. by the SEC and FINRA. Member FINRA, SPIC.

Risk Disclosure: The information contained herein is market commentary by NYPPEX.       NYPPEX provides its market commentary for informational purposes only. This market commentary is incomplete, relies on information from 3rd parties and such information may be incorrect or change at any time without notice or update to the market commentary.

 

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