Bank of America analysts have issued a warning to traders who are shorting crude oil, cautioning them about a potential reversal in energy demand next year. In their latest report, the analysts highlighted that traders have been operating under the assumption that oil prices will remain weak in the near term, and may even weaken further. Factors contributing to this assumption include concerns over weakening demand in China, the possibility of an OPEC+ price war, and ongoing challenges in the global economy.
However, the analysts at Bank of America believe that the situation may unfold differently. They anticipate a substantial increase in energy demand in the near term, driven by a strengthening global economy and what they refer to as “the next productivity revolution.” The analysts emphasized that the upcoming clash between artificial intelligence (AI) development and the fight against climate change will have energy at its core. The scale of energy demand required for AI, which must be dispatchable, is expected to significantly boost natural gas demand as a cleaner alternative to coal, while also ensuring reliable power generation.
Bank of America predicts that this AI drive in Big Tech will lead to a substantial increase in U.S. electricity demand growth, from the current modest rate of 0.2% to 2% over the next seven years. The analysts also estimate that global GDP will expand by 3.3% next year, with global energy demand increasing by 3% in the same period. They note that this additional demand cannot be met solely by non-hydrocarbon sources, indicating that demand for hydrocarbons, including oil, is likely to rise, thereby pushing prices higher.
In conclusion, Bank of America’s analysts believe that traders shorting crude oil may be walking into a bear trap, as energy demand is expected to reverse its current course next year. The anticipated rise in energy consumption, driven by the next productivity revolution and the clash between AI development and climate change efforts, is likely to fuel demand for hydrocarbons, leading to higher oil prices.