We raise our average Brent oil price forecast by ~12% for 2022. In H1 2022, the average Brent price was USD105/bbl, which was higher than our expectation due to supply constraints and disruptions caused by the Russia-Ukraine conflict. With a larger potential oil surplus in H2 compared to H1 that is driven by downward revisions in 2022 crude oil demand growth from most institutions (due to China’s lockdown and lower global economic growth), we expect Brent prices to soften in H2 2022 and forecast an average price of USD95/bbl for 2022. This is still an upward revision of 12% compared to our previous assumption of USD85/bbl, which is mainly due to a tighter-than-expected supply.
We also raise our average Brent oil price forecast for 2023F by 12% and maintain our assumptions for 2024-2026F. 1) The International Energy Agency (IEA) forecasts 2023 crude oil demand growth of 2.1 million barrels per day (bpd) to ~102 million bpd, surpassing pre-COVID levels mainly from the expectation that China’s demand will recover from the country’s lockdowns. 2) Tougher European sanctions on Russia coming into full force could reduce Russian oil production by three million bpd. 3) The actual production of OPEC+ in May and June 2022 missed the group’s targets, suggesting a more modest increase for 2023. Lastly, 4) the Energy Information Administration (EIA) forecasts US supply growth to increase by only 1.1 million bpd in 2023 and projects a smaller global oil surplus in 2023 in its July report compared to its March report. Therefore, we expect oil prices to stay higher for a longer duration and raise our average Brent crude forecast for 2023 from USD80/bbl to USD90/bbl. We maintain our forecast for 2024-2026F at USD75/bbl as we expect oil price normalization from 2022-2023’s high base to be supported by increased global exploration and production spending. The main downside risks to our Brent oil price assumptions are a resumption of COVID-19 restrictions, lower demand due to rising inflation and monetary tightening by central banks, and escalated supply chain issues.
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