Crude oil price may surge to $100 a barrel next year as travel demand rebounds, the Bank of America Corp. has predicted, the strongest call yet among major forecasters for a return to triple digits.
Global oil consumption will continue to outstrip supply in 2022 as the economic recovery from the pandemic boosts fuel consumption, while investment in new production is crimped by environmental concerns, the bank said in a report.
“There is plenty of pent-up oil demand ready to be unleashed,” the bank’s New York-based head of commodities research, Francisco Blanch has predicted.
Brent futures traded $75 a barrel last week.
While other market-watchers, from trading house Trafigura Group to Goldman Sachs Group Inc., have already said that oil could reach $100 again in the right conditions, the prediction from Bank of America was the firmest to date.
If crude does return to triple digits, it will be the first time since 2014, before a flood of North American shale oil sent the market into a slump from which it has never fully recovered, Bloomberg reported.
The increasingly bullish outlook for oil is adding to pressure on the OPEC+ coalition led by Saudi Arabia and Russia, which meets this week to consider reviving some more of the production it cut during the pandemic.
While Riyadh has signalled it prefers to move cautiously, an ever-tighter world market could compel the alliance to open the taps a little. Prices have been stoked this month as fellow OPEC member Iran failed to clinch an agreement to relieve U.S. sanctions on its petroleum exports.
According to Bank of America, the immediate prospects for the OPEC+ alliance are bright, adding that oil consumption will be bolstered next year as mass transit struggles to keep pace with extra travel demand, prompting passengers to make greater use of private cars.
Even the ongoing popularity of remote working won’t dent fuel consumption as much as expected, as home-workers use cars during the day to run personal errands, the bank said.
“Work-from-home means ‘work-from-car’ in many cases,” it added. At the same time, the bank expects that new oil supplies will remain constrained while shareholders will pressure major companies to invest in renewable energy, or push shale drillers to return cash rather than spend on new drilling.
Still, expectations for a tight market in 2022 are far from unanimous.
A report from the International Energy Agency (IEA) earlier this month showed that half of the projected increase in demand can be met by recovering output outside OPEC, predominantly from the U.S.
That would leave the OPEC and its partners with significant quantities of idle output and even more if Iran can strike a nuclear accord with the U.S. by then.
On its own, Trafigura Group said oil could top $100 a barrel in the next 12 to 18 months as the recovery from the pandemic drives a rebound in demand.
“The market is hungry for oil,” Saad Rahim, Trafigura’s global chief economist, said in an interview with Bloomberg Television.
The trading house joins a chorus of market-watchers predicting that crude could reach triple digits again in the right conditions.
Benchmark Brent has surged above $75 a barrel for the first time in two years as economies emerge from Covid-19 restrictions, pushing up demand for gasoline, diesel and even jet fuel.
“Eventually, you are going to be in a situation where demand has not only recovered but is stronger than it was, and you don’t have that capacity you need,” he said.
“Oil Could hit $100 as soon as next year and are likely to exceed that level within 18 months, if the conditions are right, with the increase happening “gradually and then suddenly,” Rahim said.
Trafigura is the world’s second-largest independent oil trader, handling more than 6 million barrels of crude and petroleum products a day. The Singapore-based company has thrived during the pandemic, posting record half-year profit of $2.1 billion as it seized opportunities to cash in on volatile swings in commodity prices.