BofA: “The price of crude will reach an average of 85 dollars a barrel in 2022”

If COP26 does not achieve a clear, “aggressive” or “net zero” decarbonization path, it is likely that the world needs more oil, they say.

Bank of America: Oil will remain at $ 70, unless it replaces gas

“We raised our forecasts and targets for oil prices for 2022, 2023 and beyond,” he says. Francisco Blanch, Commodity & Deriv Strategist de BofA Europe (Madrid).

Oil prices have recently risen above $ 80 a barrel, driven by the substitution of gas for oil and an increase in air travel.

Where do we go now? “The pent-up demand for oil was the main reason we set a target of $ 100 for Brent in 2022 in June. However, we now believe that rising world gas and coal prices have fueled the recovery in Brent and WTI prices. “

“As we look to 2022 and 2023, we still expect oil to move from a steep deficit that has caused global inventories to decline at a rate of 1.2 million b / d in the last 6 months to a more balanced market” .

“Still, structural rigidities in oil supply and demand are emerging, and we now forecast that Brent and WTI crude prices will average $ 85 and $ 75 / bbl and $ 82 and $ 70 / bbl in 2022 and 2023, respectively, compared to $ 75 and $ 65 (for Brent) and $ 71 and $ 61 (for WTI) earlier.

Diesel demand

Bank of America also notes that future oil balances do not appear exceptionally tight and supply growth outside OPEC + should be able to keep up with demand over the next 2 years. However, the available capacity of OPEC + is decreasing due to the lack of investment.

“We estimate that the price elasticity of the US shale supply has been reduced by more than half.”

Furthermore, oil demand growth should remain strong thanks to easy policies, as oil prices remain below the point at which demand destruction could occur. And even if the potential return of the Iranian barrels Helps control prices in 2022, a combination of rapidly growing gasoline demand and a continued recovery in middle distillates, coupled with refinery constraints, could push oil prices higher in 2022.

For this reason, “we also increased our target price for Brent oil by the end of the first half of 2022 to $ 120 / bbl.”

Long-term: $ 50

While oil prices are at risk of entering a phase of demand rationing, the expectation of a peak in oil demand in this decade due to the pressures of climate change has kept oil prices low in the long term in relation to the future for now.

But nevertheless, if COP26 fails to offer a clear path of “aggressive” or “Net zero” decarbonization, the world is likely to need more oil than is currently available to meet demand growth in the 2020s.

“Even if we see a relatively balanced oil market in 2022 and 2023, there is too little crude oil in inventory in the OECD to cope with a sustained increase in demand in 2025-2030.”

If policy focuses primarily on supply and does not address demand simultaneously, a playbook similar to the one just observed in global oil and gas markets may emerge.

Lack of commitments

Any future collision of supply and demand rigidities in oil prices to that of gas It could be much more damaging to the world economy.

For now, the inflationary pressures They are fueling rising local currency prices for diesel and other fuels. Since the beginning of 2020, many central banks have raised interest rates, but developed markets are nowhere near tightening monetary policy significantly.

At the micro level, rising energy costs are also driving wider light to medium oil spreads.

If COP26 fails to reassure the market that energy demand is on a clear decarbonisation path over the next decade, oil could join gas in the final episode of the energy restriction game. A China slowdown, supply chain problems and a release of SPR (Strategic Petroleum Reserve) are short-term downside risks for oil.