The fallout of Russian crude oil sanctions and delays in the renewal of the Iran nuclear deal will continue to keep oil prices at around $110 per barrel this year, according to oil market experts from leading banks and an energy institution.
Citing the fallout from the Russia-Ukraine conflict, analysts from two international banks — Citi and Barclays — have raised their oil price forecasts while the US Energy Information Administration’s (EIA) latest short-term energy outlook projects that the Brent spot price would average $107.37 per barrel this year and $97.24 per barrel in 2023.
The EIA’s previous energy outlook, which was released in May, forecasted that the Brent spot price would average $103.35 per barrel in 2022 and $97.24 per barrel in 2023.
“The Brent crude oil spot price averaged $113 per barrel (b) in May. We expect the Brent price will average $108/b in the second half of 2022 (2H22) and then fall to $97/b in 2023. Current oil inventory levels are low, which amplifies the potential for oil price volatility. Actual price outcomes will largely depend on the degree to which existing sanctions imposed on Russia, any potential future sanctions, and independent corporate actions affect Russia’s oil production or the sale of Russia’s oil in the global market,” said the EIA.
The UAE’s Energy Minister Suhail Mohammed Faraj Al Mazrouei has warned that oil prices are “nowhere near” their peak as an impending rise in Chinese demand threatens to strain a global market already pinched by tight supplies, Mazrouei warned that without more investment across the globe, Opec plus can’t guarantee sufficient oil supplies as demand fully recovers from the coronavirus pandemic. Prices can reach “unseen” levels if Russian oil and gas is completely taken off the market, he said.
Citi Research raised its oil price forecast due to heavy delays in securing another Iranian nuclear deal, which will contribute to the tight market conditions for crude oil.
Citi now sees sanction relief for Iran coming in the first quarter of 2023, adding 500,000 bpd in the first half and 1.3 million bpd over the second half. This is in contrast to its previous forecast, which assumed Iranian sanctions relief—and therefore additional crude oil—would come sometime mid-2022. Now that we are already in mid-June and the talks appear to have stalled, Citi’s previous scenario looks highly unlikely.
Citi’s second-quarter 2022 Brent forecast is now seen at $113 per barrel—up from $99 per barrel in its previous forecast. Citi also raised its Q3 and Q4 forecast to $99 and $85 per barrel, respectively. For 2023, Citi lifted its Brent price forecast to $75—up $16 per barrel.
Barclay’s also lifted its price forecast citing crude oil sanctions on Russia by the EU. Barclays now sees Brent prices averaging $111 this year and next—an increase of $11 for this year and $23 for next year. Barclay sees WTI at $108 for both years.
Barclay’s estimate assumes Russia’s crude oil production will decrease by 1.5 million bpd by the end of the year, after European Union ambassadors approved last Thursday the plan to ban Russian seaborne imports of crude in six months and refined products in eight months. The sanctions package also includes a ban on tanker insurance for Russian shipments to third countries, to take effect six months after the package is formally adopted.
In a report, Fitch Solutions outlined that it sees the Brent oil price averaging $100 per barrel this year, $90 per barrel in 2023, $85 per barrel in 2024, and $88 per barrel in both 2025 and 2026.
“This month we are holding our annual average Brent front-month forecast at $100 per barrel for 2022 and $90 per barrel in 2023, despite the EU embargo on Russia oil and petroleum products agreed at the end of May 2022,” Fitch Solutions stated in the report.
“Our fundamental views remain intact, with our expectation that a ban on Russia oil imports was likely and as factored into our forecast, with the net loss of demand from continuing lockdown measures in China and slower global economic growth both weighing on oil consumption and muting the impact of lost Russian barrels,” the company added in the report.
“The most significant bullish factor currently impacting oil prices is the ongoing fallout from the Russia-Ukraine conflict,” Fitch Solutions said.
The Bloomberg Consensus sees Brent prices averaging $99.8 per barrel in 2022, $90 per barrel in 2023, $85 per barrel in 2024, $83 per barrel in 2025, and $81.5 per barrel in 2026.
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