ADVERTISEMENT

ADVERTISEMENT

Oil prices could hit $100 as demand outstrips supply, analysts say

Analysts say oil prices will be supported by the reluctance of many governments to restore the strict restrictions that hammered the global economy when the pandemic took hold in 2020.

Oilfield technicians work with a drill at a rig of Ecuador's state oil company Petroamazonas in Tiputini
Oilfield technicians work with a drill at a rig of Ecuador's state oil company Petroamazonas, in Tiputini, Ecuador, on October 19, 2017.
Daniel Tapia/REUTERS
We are part of The Trust Project.

LONDON, Jan 12 — Oil prices that rallied 50% in 2021 will power further ahead this year, analysts predict, saying a lack of production capacity and limited investment in the sector could lift crude above $100 a barrel.

Though the Omicron coronavirus variant has pushed COVID-19 cases far above peaks hit last year, analysts say oil prices will be supported by the reluctance of many governments to restore the strict restrictions that hammered the global economy when the pandemic took hold in 2020.

Brent crude futures traded above $84 on Wednesday, hitting two-month highs.

"Assuming China doesn't suffer a sharp slowdown, that Omicron actually becomes Omi-gone, and with OPEC+’s ability to raise production clearly limited, I see no reason why Brent crude cannot move towards $100 in Q1, possibly sooner," said Jeffrey Halley, senior market analyst at OANDA.

The Organization of the Petroleum Exporting Countries (OPEC) and its allies, a group known as OPEC+, are gradually relaxing the output cuts implemented when demand collapsed in 2020.

ADVERTISEMENT

However, many smaller producers can't raise supply and others have been wary of pumping too much oil in case of renewed COVID-19 setbacks.

"We don’t want to see $100 a barrel. The world is not ready for that," Omani Oil Minister Mohammed Al Rumhi was quoted as saying by Bloomberg on Tuesday.

Morgan Stanley predicts that Brent crude will hit $90 a barrel in the third quarter of this year.

With the prospect of depleting crude inventories and low spare capacity by the second half of 2022, and limited investments in the oil and gas sector, the market will have little margin of safety, the bank said.

Standard Chartered, meanwhile, has raised its 2022 Brent forecast by $8 to $75 a barrel and its 2023 Brent forecast by $17 to $77.

J.P. Morgan analysts also expects oil prices to rise as high as $90 by the end of the year.

Current demand strength is acting as a near-term tailwind, having proved largely immune to surging coronavirus infections, the bank said.

(Reporting by Bozorgmehr Sharafedin Editing by David Goodman)

ADVERTISEMENT

What to read next
The world nuclear watchdog has said the world risks a disaster if the fighting does not stop. Ukrainian and Russian-installed officials have traded accusations over who is responsible for attacks close to the Zaporizhzhia nuclear plant in southern Ukraine.
In the 12 months since the United States' chaotic withdrawal, some Afghans have welcomed improved security but struggled with poverty, drought, malnutrition and the fading hope among women that they will have a decisive role in the country's future.
Ukraine and Russia have traded accusations over multiple recent incidents of shelling at the Zaporizhzhia facility, Europe's largest nuclear power plant. Russian troops captured the station early in the war.
Nearly 116,000 square miles are still seen as "contaminated," according to data released by Ukraine's Emergency Services. Making that area safe could take a decade, the government said.