Summary
- Oil prices rose 50% in 2021
- JPM expects oil prices to “overshoot” to $125 this year
- Some OPEC producers are struggling to raise supply
- OPEC doesn’t want oil at $100 – Omani oil Minister
As the year proceeds, some analysts are saying that a lack of production capacity and limited investment in the sector could lift crude to $90 or even above $100 a barrel. Notably, oil prices rallied 50% in 2021 and the market is expected to power further ahead this year.
The reluctance of many governments to restore the strict restrictions that hammered the global economy when the pandemic took hold in 2021 will support oil prices, analysts say, although the Omicron coronavirus variant has pushed COVID-19 cases far above peaks hit last year.
On January 12, Brent crude futures hit two-months high, trading near $85.
Jeffrey Halley, a senior market analyst at OANDA, said:
“Assuming China doesn’t suffer a sharp slowdown, that Omicron actually becomes Omi-gone, and with OPEC+’s ability to raise production clearly limited, I see no reason why Brent crude cannot move towards $100 in Q1, possibly sooner.”
When demand collapsed in 2021, output cuts were implemented but are now being gradually relaxed by the Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+.
With some small suppliers becoming wary of pumping too much oil in case of renewed COVID-19 setbacks, however, many smaller producers cannot raise supply.
In the third quarter of this year, Brent crude is predicted to $90 a barrel by Morgan Stanley.
The bank said that the market will have little margin of safety with the prospect of depleting crude inventories and low spare capacity by the second half of 2022, and limited investments in the oil and gas sector.
After OPEC capacity estimates for 2022 were lowered by 0.8 million barrels per day (bpd) and 1.2 million bpd respectively by the Energy Information Administration (EIA) and Bloomberg, oil prices were seen rising by up to $30 by JPMorgan analysts, they said in a note on Wednesday.
Oil prices are expected to “overshoot” to $125 a barrel this year, and $150 in 2023, according to the bank.
OPEC could boost prices to $100, if it was disciplined and wanted to keep the market tight, Rystad Energy’s senior vice-president of analysis Claudio Galimberti said.
Though not considering this to be a likely scenario and while oil could “momentarily” reach above $90 this year, downward pressure on prices would come from production increases in Canada, Norway, Brazil and Guyana.
The group does not want to see $100 barrels of oil, Omani Oil Minister Mohammed Al Rumhi also said on Tuesday.
“The world is not ready for that,” Al Rumhi was quoted by Bloomberg.
Amid snarled global supply chains, high oil prices, which also drive up gasoline and diesel prices, inflation might remain uncomfortably high well into 2022, slowing the economic recovery from the pandemic in many countries.
In the meantime, Brent forecast by Standard Chartered had been raised by $8 to $75 a barrel in 2022 and its 2023 Brent forecast by $17 to $77.
Brent, in a Reuters’ poll in late December by 35 economists and analysts, was forecasted to trade at an average of $73.57 a barrel in 2022, about 2% lower than the $75.33 consensus in November.
Since 2014, Brent prices have not touched $90 and $100, when they were retreating from a high above $115 to as low as $57 by the end of the year.
