Investors shorting oil are walking into a 'bear trap' with energy demand set to surge, Bank of America says

• Investors have turned bearish on oil amid fears of an OPEC+ price war and weak China oil demand.
• But if world GDP grows 3.3% next year, energy demand will likely surge, Bank of America says.

Investors have turned sour on oil over fears of an oversupplied market in the next year.

However, the downbeat sentiment setting a "bear trap" for investors, Bank of America analysts say.

That's because if GDP grows according to estimates, energy demand growth will likely follow.

They note that recent short positioning in the oil market has reached near-record levels as investors become concerned about OPEC+ plans to add more supply to a market already awash in US oil. However, investors should look instead to the AI boom as a sign of future demand growth.

"For all the bearish concerns out there, we believe global energy consumption will likely speed up ahead as the next productivity revolution comes to the fore," the analysts wrote in a Monday note.

"It is important to remember that the upcoming clash between artificial intelligence and the fight against climate change has energy at its core," they added.

The analysts estimate that with AI-driven demand for data centers coming as part of the next "productivity revolution," US electricity demand growth will speed up from 0.2% to 2% in the next seven years.

With the analysts' estimates for 3.3% growth in world GDP in 2025, energy consumption could expand by six to nine million barrels of oil per day, so long as the global economy avoids a hard landing or a trade war. That totals as much as 3% growth in global energy demand.

Further policy easing from the Federal Reserve with lower interest rates could also help boost the world economy "quite substantially over the coming quarters," the strategists said.

They expect the Fed to drive rates below 3% by the end of next year, which they say could stimulate both oil and cyclical commodity demand, they said.

And with tensions in the Middle East rising, supply could see unexpected changes, which could pose upside risks to the analysts' price projections.

The analysts' forecast for greater for energy demand comes as investors have turned bearish on energy, with prices dwindling this year even amid mounting concerns of disruptions from conflicts in the Middle East.

OPEC+ plans to add crude oil barrels into an existing surplus oil market after a series of cuts in the last two years.

OPEC's supply plans and sluggish demand in China could pose risks to the oil market next year, the analysts said.

Those factors, along with the chance for a global economic slowdown, pose downside risks to the analysts' oil price target.

"A trade war, an OPEC+ price war, or a hard economic landing could take oil below $60/bbl temporarily. Yet a move to this level could quickly push the oil market into balance and encourage substitution from the power generation sector," the analysts said.