Oil and Gas

Tax reform will stimulate crude markets, encourage drilling, analyst says

Key Points
  • Senior oil analyst Abhishek Deshpande raised J.P. Morgan's 2018 forecast to $60 per barrel on Brent and $54.90 on WTI.
  • Desphande said tax reform will stimulate oil demand and prompt more drilling.
JP Morgan's oil playbook for 2018

Not only will tax reform stimulate oil demand, it will likely stimulate U.S. drilling, according to J.P. Morgan senior oil analyst Abhishek Deshpande.

Deshpande raised the bank's 2018 forecast to $60 per barrel on Brent and $54.90 on WTI, anticipating crude will ride the tide of economic growth to increased growth and production.

"Going into 2018 we are expecting this whole synchronized global, economic growth which, of course, has a direct impact on oil products demand," Deshpande said on CNBC's "Power Lunch." "And if tax reform was to impact the growth in oil products demand on the upside, for sure that will help balance the market even more than what they're anticipating in '18."

As for the tax bill, Deshpande thinks the provision for 100 percent capital expenditure expensing will likely translate to more drilling by U.S. companies — if the price is right.

"It's going to help U.S. producers to increase their drilling activity in 2018 and going forward," he said.

Given Deshpande's pricing predictions, however, cost shouldn't be a problem. He said he could see oil companies kicking back up production on pricing of $50 to $55 per barrel.

Correction: This story has been updated to reflect that Deshpande is an analyst with J.P. Morgan.