BAKU, Azerbaijan, March 3
By Leman Zeynalova – Trend:
Unlike supply-driven rebalancing in 2021, oil prices will be dictated by demand in 2022, Trend reports citing the US JP Morgan Bank.
With demand back to pre-Covid 19 levels and growing, and global inventory normalized, Brent prices should strengthen to reach close to $80/bbl by 2Q22 even with OPEC+’s production back to 2019 levels, according to the Bank.
“The situation might begin to change somewhere in late-2022. For one, history tells us that when the post-recessionary global economic bounce comes to an end (somewhere in 3Q22), the intensity of oil demand to GDP will halve. There are good reasons to believe that the ratio will recede below the historical norm of 1:0.5 due to greater mandated fuel efficiencies and increased penetration of electric and hybrid vehicles. What’s more, even under a Biden administration, the price will likely remain the short-term determinant of US production growth. Indeed, a $65-70/bbl oil price almost assures 1 mbd growth in US oil output alone in 2022,” reads a JP Morgan report.
JP Morgan slightly boosted its 2021 Brent oil price forecast by $3/bbl, while keeping the 4Q21 forecast unchanged at $68/bbl ($71/bbl December average).
“We also lift our 2022 average price forecast by $6 to $72/bbl, fully aligning our price forecast with our model-predicted values. Our price deck is now 2 percent above the futures curve for calendar year 2021 and 21 percent above calendar year 2022, with 2Q22 at a 27 percent premium to the futures curve. Having said that, prompt futures prices seem to be a bit high vs. fundamentals at the moment, likely driven by significant improvement in sentiment which is not captured in our model. After trading for the most part of 2020 below model-predicted levels, Brent oil price is currently running two quarters ahead and $4 above what fundamentals warrant. This exuberance is evident in the price momentum signal, which remains in extreme territory, suggesting a risk of profit-taking or mean reversion signals being triggered. The acknowledgment of this froth drives our decision not to raise our 2021 price forecasts beyond the $3 implied by the faster inventory normalization. In other words we are calling time out on the rally for the time being.”
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