With crude prices under pressure from growing fears of a global recession while supply-side threats hang over the market, the near-term price forecasts for the key commodity have become increasingly hedged as analysts second guess
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After hitting a 10-week high at more than $125/b in mid-June, Brent crude futures have ceded ground in volatile trading as concerns over a global economic slowdown trumped the impact of Western sanctions on Russian oil supplies.
Global markets steadied early July 6 a day after the euro dropped to a two-decade low against the dollar and Brent crude futures slumped almost 10% to trade at their closest to $100/b since April 26. The rout was the third-largest absolute price drop since Brent futures trading started in 1988.
At 1030 GMT, the ICE Brent September contract stood at $103.72/b, up 95 cents/b on the previous day's close of $102.77/b. Physical Dated Brent was assessed by Platts at $113.79/b on July 5, remaining well above front-month futures prices.
With increasing uncertainty over the demand-supply fundaments in the coming months, the range of oil price forecasts by market watchers has widened in recent weeks.
Bullish Goldman Sachs sees Brent futures averaging $135/b between the second half of 2022 and the first half of next year, while Standard Chartered estimates an average Brent price of $103/b this year.
For 2023, the Brent forecast gap widens further. Goldman is expecting Brent to average $125/b next year, a massive $50/b above the more bearish Citigroup, which last predicted Brent at $75/b in 2023.
On average, investment banks and oil market forecasters are predicting an average Brent price of $112/b this year, a level expected to ease to an average of $100/b in 2023, based on the most recent forecasts from 10 institutions.
Investment bank UBS remains on the bullish side, predicting that Brent will hold at around $125/b through mid-2023 supported by lingering supply-side woes such as the latest social unrest that has hit production in Libya, and similar recent unrest which briefly impacted output from Ecuador.
"We reiterate our positive outlook for crude oil prices," UBS's strategist Giovanni Staunovo said in a July 6 note. "While an economic slowdown will weigh on demand growth, oil demand has continued to hold up despite high prices. The desire to travel again is supporting oil demand in the Northern hemisphere. Market participants should also focus on the supply side."
Political uncertainty over whether Russia will respond to mounting Western sanctions by curtailing more vital gas supplies to Europe or slashing its oil production is also roiling the markets, triggering a diverse set of 'what if' scenarios for oil prices.
JPMorgan Chase on July 1 warned that Brent futures could soar to a "stratospheric" $380/b by year-end if Russia decided to take 5 million b/d of its oil production offline in retaliation for mounting sanctions on its oil exports.
Supply-side fears have been exacerbated by rising concerns over whether OPEC is able and willing to pump more crude in the months ahead, with many countries unable to hit quotas due to deteriorating infrastructure, a lack of investment or political instability. In May, the producer group fell short of its production targets by about 2.7 million b/d, according to its own assessments.
At the other extreme, Citigroup said July 5 that Brent crude could collapse to $65/b by year-end and to $45/b by the end of 2023 if a widespread global recession saps the demand for energy. The bank only gave the recession scenario a 10% chance of occurring, however.
Indeed, as Central Banks hike interest rates to curb soaring inflation, the US Federal Reserve is expected to announce further rate hikes following its sharpest increase in the US benchmark interest rate in nearly 30 years last month.
Despite the growing demand uncertainty, most market watchers are not predicting a global recession as their default assumption for the coming year.
Platts Analytics forecasts global oil demand expanding by 2.8 million b/d in 2022 and by 2.4 million b/d in 2023 and assumes an annual average Dated Brent price of $106/b for 2022 and $90/b for 2023.
Recent Brent futures average price forecasts ($/b)
Royal Bank of Canada
Platts Analytics (Dtd Brent)
* forecast for Dec 2022 through June 2023