Oil price could be over $100 per barrel next year: Schroders
By Rob Griffin
13:40, 2 December 2021
Fund manager Schroders (SDR) believes oil prices could soar above $100 per barrel next year due to limited new supply and growing demand.
In a research note, it predicts oil demand will grow to 100.23 million barrels per day (mb/d) in 2022, up 3.5mb/d from this year – and comfortably above the 2019 levels of 98.27mb/d. The calculations are based on forecasts of global GDP growth.
However, it warns the biggest risk would be the return of Iranian barrels, as this would cause a surplus and force prices down towards $60 per barrel.
Currently, the price of both Brent crude, the European benchmark, and US West Texas Intermediate, the US benchmark, are both below $70 per barrel.
Surging oil prices
According to Malcolm Melville, energy fund manager at Schroders, market attention is now turning to next year after a surge in oil prices during 2021.
“Inventories will likely start the year below the five-year average, and natural gas prices in Europe and Asia significantly above long-term norms,” he wrote.
He also believes additional demand will come as a result of switching from gas to oil, as well as the rise in airborne freight, given the current global supply chain problems.
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Supply will remain limited
Melville estimates that the increased demand will require an additional 3.5 million barrels per day at the very least, which is likely to come from OPEC, Russia and the United States.
“After cutting production by around 10mb/d in 2020 following a collapse in demand due to the Covid-19 crisis, OPEC+ is now increasing output by 0.40mb/d per month until September 2022, when each country hits their baseline,” he wrote.
However, if OPEC production only returns to average pre-Covid-19 levels, he warns, output will only increase by 1.2 million barrels per day.
Main risks
Melville also highlighted three main risks to oil demand in 2022:
- A return to widespread mobility restrictions if Covid-19 disrupts travel again.
- Falling demand from a short-term price spike.
- Weakening of growth due to supply chain disruption.
“The biggest risk in terms of supply comes from Iran, which could increase production by around 2mb/d if relations with the West improve markedly,” he added. “The exact pace and quantity of this is unknown.”
Read more: OPEC+ hinting at not releasing additional oil supplies
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