May 14, 2018 This article is more than 2 years old.

There is a risk that oil prices could hit $100 per barrel next year for the first time since 2014, according to new research from Bank of America Merrill Lynch. It’s primarily an old-fashioned case of more demand, less supply.

In an interview with Bloomberg, BofAML’s head of commodities research Francisco Blanch discusses the important dynamics driving the oil markets:

Venezuelan output has been falling. According to the US Energy Information Administration (EIA), production in Venezuela has decreased from 2.3 million barrels per day in January 2016 to 1.6 million barrels per day in January 2018. The EIA says that the decline has been partly due to mismanagement of Venezuela’s oil industry and expects the decline to continue. Active rigs are in decline, missed payments to oil service companies are a problem, and there are a lack of knowledgeable workers.

The impact of the US pulling out of the Iran nuclear deal will likely decrease supply and lead to higher prices. Many analysts expect some decline in supply and all agree on an increase in uncertainty over the next few months. Branch states that the Iran situation could certainly “make things worse.” So far, the big oil companies have gained $35 billion in value since the US quit the Iran deal.

OPEC, the oil cartel, is due to meet on June 22. According to Blanch, the big question at this meeting will be how much OPEC and Russia cooperate. Russia has been “hit by US sanctions,” while Saudi Arabia has a strong incentive to see the oil price at above $80 per barrel in order to support the long-awaited IPO of the state oil company, Aramco. In March, it was reported by Reuters that Saudi Arabia and Russia are considering a 10-to-20-year oil alliance. Branch reinforced the importance of the June meeting; if Russia and OPEC decide to cooperate, the chances are reduced for an oil price war and any resulting price decline.

US supply has limited capacity to respond. Shale producers in the Permian basin are constrained by pipeline capacity and are currently receiving $13 -16 per barrel less than similar oil contracts. Add to this that forward contracts have not moved—currently, 2022 prices for crude are still at $51 per barrel, according to Branch—all of which means that shale producers do not get the benefit of current high prices.

Oil prices of $100 per barrel translate to a gasoline price at the pump of $3.60 per gallon in the US, more than $1 per gallon above current average prices. At this price, it’s unlikely that consumers would be able to absorb the full increase and demand would drop.

When oil prices were around $140 per barrel back in mid-2007, high prices drove investment into electric vehicles and other clean technologies. If BofAML is right and oil does hit $100 per barrel or more, this may drive more investment into EVs and clean technologies.