Crude oil prices can hit $100 a barrel in 2022, say analysts

Crude oil prices are likely to hit $100 a barrel by 2022-end – up around 35 per cent from the current levels – despite the demand disruption, if any, caused by the Omicron Covid variant, believe analysts. The impact of omicron, if it spreads wildly, will most likely be felt in the first half of 2022, as governments tighten measures to contain the spread of the new variant, analysts said. However, any lockdowns are likely to be localised and more targeted, and oil demand impact is likely to be more modest than before.

“Oil demand which briefly touched pre-Covid levels of $100 million barrels per day (mb/d) and will be at record highs for most part of 2022. Except for the demand for jet fuel, the demand has already been at record high for diesel and gasoline. There is a possibility that oil prices may hit $100 per barrel during 2022, but it is more of an outcome for 2022-end. That said, if the supply is constrained, there will need to be demand destruction as well on account of higher oil prices,” said Damien Courvalin, head of energy research at Goldman Sachs.

Though oil prices have cooled of from $85 per barrel mark seen in October 2021, they are still 44 per cent higher year-on-year (YoY) at around $74 a barrel now. Crude oil market, according to Goldman Sachs, is pricing in a far larger demand hit than during Delta – equivalent to no planes flying for the next three months. This, in turn, is exacerbating the supply problems facing all commodity markets. 

“OPEC has not accommodated the recent weakness, leaving oil facing another short-term hit to sentiment and fundamentals. Any further slide in crude prices now directly disincentivises supply, supporting our medium-term forecast for renewed deficits and sharply higher prices. While the precise extent of any variant related demand softening remains unclear, prices have overshot to the downside; we remain overweight commodities and forecast 28.5 per cent 12-month return,” Courvalin said.

Oil prices, according to analysts at JP Morgan, will remain a major beneficiary of a continued economic reopening over the course of 2022. Despite a rapid pace of supply growth expected in the US in 2022, US supply, JP Morgan believes, will likely only return back to pre-Covid volumes in July 2023. 

“This leaves OPEC+ firmly in control over 2022, keeping the global oil market balanced with inventories below the five-year range. As a result, we expect Brent oil prices to move higher over the course of next year, averaging $88 per barrel in 2022 and breaching $90a barrel mark sometime in the third quarter of 2022 (Q3-2022),” wrote Marko Kolanovic, chief global markets strategist and global co-head of research at JP Morgan in a co-authored report with Hussein Malik.

Back home, Platts Analytics expects India’s December oil demand to grow 185,000 barrels per day (bpd) year-on-year, taking the full-year growth to 260,000 bpd (up 5.6% YoY), before posting a growth of 320,000 b/d (up 6.7%) in 2022, as the economy continues to rebound.

"India’s net exports of the three key products, gasoline, kero/jet, and gasoil, are expected to average 965,000 b/d in 2021, rising from 910,000 b/d in 2020, but will likely be lower at 890,000 b/d in 2022, as domestic demand continues to grow," S&P Global Platts said in a recent note.