Oil prices are expected to overshoot $125 a barrel next year and $150 in 2023 due to capacity-led shortfalls in the Organisation of Petroleum Exporting Countries (OPEC) production, JP Morgan Global Equity Research has said.
“As the group’s (OPEC+) real volume potential is discovered, this should drive a higher risk premium to oil prices,” the bank said in a note.
“We think OPEC+ will slow committed increases in early 2022, and believe the group is unlikely to increase supply unless oil prices are well underpinned,” the bank said.
The bank also forecast global oil demand to reach 99.8-101.5 million barrels per day in 2022-23.
OPEC and its allies agreed last Thursday to stick to their existing policy of monthly oil output increases despite fears that a U.S. release from crude reserves and the new Omicron coronavirus variant would lead to a fresh oil price rout.
But the producer group said it could review its production hike policy at short notice if oil demand collapsed due to a rising number of lockdowns, while Brent was on course for a sixth week of declines.
OPEC, Russia and allies, together called OPEC+, surprised the market on Thursday when it stuck to plans to add 400,000 barrels per day (bpd) supply in January.
“Its decision to continue increasing monthly crude production is a vote of confidence in the near-term demand outlook. Better said, OPEC+ is banking on the new Omicron variant not having a lasting impact on oil demand,” the experts added.
But producers left the door open to changing policy swiftly if demand suffered from measures to contain the spread of the Omicron coronavirus variant. They said they could meet again before their next scheduled meeting on Jan. 4.
OPEC has struggled to actually follow through with its scheduled output increases while markets across assets have been roiled all week by the emergence of Omicron and speculation that it could spark new lockdowns and dent fuel demand.
JPMorgan analysts said the market fall implied an “excessive” hit to demand, while global mobility data, excluding China, showed that mobility is continuing to recover, averaging at 93 per cent of 2019 levels last week.
“So far we see no signs of demand weakening on (a) global scale,” the JPMorgan analysts said.