There is little question that oil prices are finally starting to make the climb up towards the heights it had previously scaled.

In the last month, the benchmark Brent crude has pushed its way up from ~US$78 per barrel up to US$85.63/bbl though it is still a ways off from the 52-week high of US$95.03/bbl or the all time high of US$147.50 set in July 2008 when the world was in the midst of a worldwide recession.

The primary reason is of course the production cuts put in place by OPEC and its allies, which was put in place to boost prices – preferably above the US$80/bbl mark – following economic uncertainty.

With the cuts – totalling 2.2 million barrels per day – expected to stay in place until at least the end of the first half of 2024, the oil market is already showing signs of tightening as demand starts to impact on available supply.

Oddly, the US Energy Information Administration reported that a second straight week of inventory build for its strategic oil stockpiles though inventories of gasoline (petrol) fell by 4.3MMbbl in the week to March 29.

Geopolitics have also played a role with Ukrainian drone attacks on Russian refineries raising concerns that global fuel supplies could be impacted.

Could oil continue climbing?

While US oil production has continued to climb – allowing it to snatch market share from OPEC+, it is hardly enough to offset the lost volumes.

The reduced production will likely serve to tighten the market further, especially if recession concerns ease and demand starts picking up again.

And that’s assuming that the OPEC+ starts winding back cuts gradually after the middle of the year.

Barring a major boost in demand, there is a very good chance that the oil cartel and its hanger-ons will maintain the production cuts, which will only serve to keep the market tight.

This makes it very likely that the Bank of America’s – admittedly conservative – forecasts could be met.

The bank’s energy analysts recently revised their forecasts upwards, saying that the Brent would average US$86/bbl this year and peak at about US$95/bbl, up from its previous average of US$80/bbl.

Could oil prices go beyond that say to the magic US$100/bbl price point? Sure, but it’s a bit more of a stretch.

Markets can be irrational though, so it is best not to completely deny that it is possible, even if it is a remote possibility.