Goldman Sachs has forecast crude oil prices could hit $100 in 2023 as demand growth outpaces supply growth.
"There's insufficient supply in the face of strong demand," said Damien Courvalin, head of energy research at the investment bank, earlier today, as quoted by Bloomberg. "Oil prices have to be higher to overcome the higher cost of capital to fund projects."
Even so, Goldman's current price forecast for Brent crude for 2022 and 2023 is $85 per barrel. The upside risks for triple-digit prices include cost inflation for drillers and a potential supply shortfall. Shrinking access to funding for new oil and gas projects is also a risk as lenders focus on ESG-aligned industries and projects.
According to Goldman's analysts, the recent drop in oil prices—fuelled by fears about the latest coronavirus variant—was an overreaction. Courvalin noted it was equal to the demand loss of 5 million bpd over the next three months.
Meanwhile, demand for everything oil-related, from fuels to plastics, is on a strong rebound, Courvalin also noted. Consumption is likely to break records in 2022 and 2023 as government spending on economic recovery and the energy transition continues to support demand.
Goldman has become the second bank this month to maintain its bullish stance on oil despite the recent dip. Earlier, JP Morgan brushed off Omicron fears saying 2022 will see the end of the pandemic and forecasting oil prices could hit $125 per barrel next year and $150 per barrel in 2023.
The investment bank cited OPEC's limited spare capacity that would, in turn, limit its ability to react to stronger demand by boosting production and "a more vibrant economic cycle."
"Although we see clear potential for a more vibrant economic cycle, the environment is also fraught with cross-currents. We are confident the economic expansion will continue through 2022, but its strength will likely be determined by the monetary response to inflation, the relative success of Chinese policymakers in rebalancing their economy, and the pace of the transition from a pandemic to an endemic disease," JO Morgan's analysts noted.
By Irina Slav for Oilprice.com
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How steep the trajectory will be depends on the size of underinvestment in the oil and gas industry leading to a potential supply shortfall and also less troublesome developments from new coronavirus variants.
Oil and gas investment will need to return to pre-pandemic levels and stay there through 2030 to restore market balance. If not $100 oil could be on the cards by the end of 2022 or the first quarter of 2023.
Oil makes the world run. That is what the chief executive of American oil giant Chevron Mike Wirth + succinctly told the World Petroleum Congress meeting (WPC) in Houston in early December. His statement expressed a sentiment that oil and gas are indispensable and will continue to be indispensable for the global economy well into the future.
This is not something that a lot of people want to hear. It is certainly not what the Biden Administration, leaders of the European Union (EU), the International Energy Agency (IEA) and the environmental activists want to hear. Yet, it appears to reflect a hard reality. Whether everyone likes it or not, ditching oil and gas will not be as easy as some hope.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London