Wednesday, 1 December, 2021
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Brent to continue to hover above $80 until 2023: BofA

NEW YORK: High oil prices are set to continue well into 2023, with the average price of the global crude Brent benchmark expected to continue to trade above $80 a barrel, according to Bank of America.

The benchmark, under which two thirds of oil is traded, is forecast to average $85 a barrel in 2022 and $82 a barrel in 2023, report agencies.

The bank revised its estimates from $75 and $65 a barrel previously, according to its latest research note to clients.

West Texas Intermediate, which tracks US crude grades, is set to trade at $75 and $70 a barrel in 2022 and 2023, up from $71 and $61, respectively.

Both benchmarks have rallied to multiyear highs, gaining more than 60 per cent since January amid a global energy crunch and rising demand, after a slump in 2020 induced by declining demand due to Covid-19.

Brent was trading 0.46 per cent higher at $85.10 a barrel at 11.21am while WTI was up 0.26 per cent at $84.27 a barrel.

BofA said it now believes “the run-up in global gas and coal prices has turbocharged the Brent and WTI price recovery”.

“As we look into 2022 and 2023, we still expect oil to move from a steep deficit that has seen global inventories draw at a rate of 1.2 million barrels per day in the past six months to a more balanced market,” the report said.

BofA expects Brent to reach $100 a barrel by mid-2022 if the Northern Hemisphere winter is colder than usual. Oil prices have surged due to a tight market for crude, growing demand and a shortage in oil and gas supplies around the world.

Natural gas prices, which are linked to crude, have nearly doubled this year as several parts of the world, particularly Europe, experience shortages.

The Henry Hub price for natural gas was up 1 per cent at $5.238 per million British thermal unit.

“In an attempt to reduce the gap between oil demand and supply, energy companies in the US have added natural gas and oil rigs for the last 15 consecutive months,” said Naeem Aslam, chief market analyst at AvaTrade.

BofA expects the crude supply environment to remain fairly tight due to broader underinvestment in the oil and gas industry and low spare capacity among the Opec+ group of nations.

US shale, which conventionally rises in supply to higher oil prices, remains muted.

“We estimate the price elasticity of US shale supply has dropped by more than half,” BofA said. “Plus oil demand growth should stay robust thanks to easy policies, as oil prices remain below the point where demand destruction could kick in.”