Magellan Capital President David Tavil also weighs in on the broader inflation picture.
Magellan Capital president David Tavil argued on “Morning with Maria” on Thursday that “with respect to oil supply, the rush for exit doors is getting really serious” as economies reopen with “strong demand”. In the midst of which soon ” a serious oil crisis in this world.”
Energy experts have been bullish on oil for the past few months, and told “Morning with Maria” in June that he expects oil prices to hit $100 a barrel before the end of 2021. On Thursday, he told host Maria Bartiromo that he believed his trajectory was still correct, adding that it would be sooner rather than later.
Several investment banks, including Goldman Sachs, have also warned that oil prices could reach $100 a barrel next year.
On Thursday morning, West Texas Intermediate crude oil, the US benchmark, was unchanged at $70.30 a barrel. The contract rose by $2.88 to $70.30 a day earlier.
Brent crude, used for international oil prices, added 25 cents $72.48 per barrel. It rose by $2.88 to $72.23 in the previous session.
Earlier this month, oil prices hit their highest level in more than six years.
On July 6, WTI rose $1.82 to $76.98 a barrel, the highest since November 2014, before curtailing its gains. International standard Brent crude oil touched $78 per barrel for the first time since October 2018. Both energy components reversed into negative territory in the later session.
The Biden administration’s push for clean energy has led many investment firms toward environmental, social governance and corporate investment and away from fossil fuels, leaving limited capital for new oil exploration.
Tavil argued that oil “is somewhat outpaced by inflation due to the demand-supply imbalance that is likely to occur in the short and medium term.”
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He said he doesn’t believe the COVID-19 delta version is “going to slow things down,” especially in the Western world and developed economies.
Tawil said he believes economies and businesses will continue to reopen after restrictions imposed by the coronavirus pandemic, travel will continue and productivity will continue to rise, and therefore, “there is going to be a strong demand.”
He then went on to interpret the picture of the oil supply, saying that companies are running for the “exit door”.
Tavil pointed to the idea of global miner BHP Group exiting oil and gas in a billion-dollar exit as it looks to accelerate its transition from fossil fuels, Reuters reported citing Bloomberg News on Tuesday, which attributed the matter to people familiar with the matter.
He also pointed to a court decision calling on Royal Dutch Shell plc to reduce its carbon emissions at a faster rate.
May’s decision highlighted growing pressure from governments, investors and environmentalists to take drastic steps to reduce emissions on oil companies.
Rising inflation could derail economic recovery from pandemic, warns IMF
Tavil stressed that because “large companies are shying away from carbon emissions for a number of reasons,” there will be a “serious” global oil crisis in three to five years.
Tawil made the remarks three days after President Biden said Congress needed to pass his macroeconomic agenda to curb rising inflation, amid concerns that another explosion of government spending was already accelerating. Acts as an accelerator in consumer prices.
Biden acknowledged on Monday that there had been “some price hikes,” but he pushed back against fears of persistent inflation and maintained his stance that the recent surge in consumer prices is temporary.
Tavil told Bartiromo that he “absolutely” disagrees with Biden’s view on inflation, citing information from earnings calls, large public manufacturers and other factors.
He stressed that he believes inflation is “here to stay”.
Tavil made the remarks more than a week after it was revealed that US consumer prices last month increased at the fastest pace since August 2008.
The Labor Department said on July 13 that prices were up 5.4% year over year and that prices have gone up every month this year. Analysts polled by Refinitiv were expecting prices to rise 4.9% annually.
The “base effect” in annual data tends to be skewed because of price drops that occurred at the start of the pandemic.
According to the department, the consumer price index rose 0.9% in June, which was faster than the 0.6% increase in May. Analysts polled by Refinitiv were expecting a 0.5% gain.
Prices of used cars rose 10.5% last month, accounting for more than a third of the increase. Additionally, energy prices rose 1.5% month-on-month and food prices rose 0.8%.
Consumer prices rise 5% annually, highest since August 2008
“Wage inflation is certainly not keeping pace with inflation for big-ticket goods,” Tavil said Thursday, pointing to durable goods like cars.
“Automobiles don’t exist in terms of availability,” Tavil said. “Yes, there are supply chain issues, but clearly when people are paying higher prices for older cars than their original sticker price, and they are not collectibles, we are in a severe inflationary environment.”
Automakers are struggling to make up for lost production during the coronavirus lockdown last year, due to an ongoing semiconductor chip shortage that has seen manufacturing and storage of vehicles incomplete until chips become available.
General Motors has moved to remove many fuel efficiency features from its full-size trucks in order to increase the supply of chips in its most profitable vehicles.
Manheim The used car index reached 203 in May, showing an increase of 48.2% over the previous year.
The overall average price for the vehicles was $20,260 while the light-duty pickup peaked at $30,590.
However, Mannheim noted that in the first 15 days of July, prices for used vehicles in bulk declined. 1.7% compared to the month of June, Which brought its Used Vehicle Value Index to 196.9, an increase of 24.7% from a year ago.
“I don’t care how high the minimum wage goes, clearly John Doe is not going to be able to move forward and keep up with the rising prices and so, I think we are going to hit a wall and in the future Not very far,” Tavil said.
Granthshala Business’ Katy Perry, Megan Heaney, Jonathan Garber and Gary Gastelu contributed to this report.