High Oil Prices Tend to Get Stickier than Many Think

Several prominent oil traders have written in their recent notes that “$100 crude is fast approaching as demand outstrips supply and a climate-inspired slowdown in investment in new sources threatens to allow reserves to wither”. A surge in gasoline demand along with a rebound in middle distillates – particularly, diesel and jet fuel – coupled with refining-capacity constraints could accelerate the rally into 2022. The scenario of a fast and protracted hike of energy prices still serves as the perfect object of jokes and common disbelief, but in reality, the world economy may be much closer to this situation than many think.

Thus, Bank of America analysts raised their 2022 forecast for ICE Brent to $85 per barrel from $75/bbl. The forecast for WTI for next year has also been upgraded from $71 to $82 per barrel. Experts reported this in an analytical report presented at Global Energy Weekly. Experts believe that the substitution of gas for oil, the increase in air travel traffic, and the rise in world prices for gas and coal are the reasons for the rise in oil prices.

The forecast for the price of Brent for 2023 was also increased – to $75 per barrel from $65, the forecast for the WTI price to $70 per barrel from $61. In other words, there is a hidden message saying from now on we are going to see higher energy prices for a longer period of time.

Analysts at Bank of America suggest that OPEC + spare capacity is shrinking due to insufficient investment. The balance in the oil market does not look "unnecessarily tense" and supply growth in non-OPEC + countries should be able to keep up with demand over the next two years. In the long term, oil could break out of the $ 50–70 per barrel corridor if the UN Framework Convention on Climate Change in Glasgow does not commit to deep decarbonization.

Similarly, the World Bank’s latest Commodity Markets Outlook forecasts that energy prices are expected to average more than 80% higher in 2021 compared to last year and will remain at high levels in 2022 but will start to decline somewhat in the second half of the year as supply constraints ease. They are projected to be $74 a barrel in 2022 as oil demand strengthens and reaches pre-pandemic levels.

IMF in this respect says that “Spot prices for natural gas have more than quadrupled to record levels in Europe and Asia, and the persistence and global dimension of these price spikes are unprecedented. They still argue, though, that “typically, such moves are seasonal and localized”.”