With gas prices the highest they’ve been in years, analysts at JP Morgan are reporting that oil prices per barrel could hit $125, a surge of about 66 percent.
JP Morgan analyst Christyan Malek says that OPEC+ “is back in the oil market driver’s seat.” Furthermore, JP Morgan predicts that crude could reach as high as $150 per barrel by 2023. The analysts further stated that the crude oil market is “at the start of a new super-cycle.”
Malek spoke further regarding OPEC+, which includes the thirteen OPEC members as well as Russia. He stated that “the prisoner’s dilemma is over;” this is a reference to a game theory in which the members of a group are encouraged to make decisions that act against the broader interests in a group. This would effectively put OPEC back in the oil market “driver’s seat.”
Malek stated that the OPEC+ group has felt the impacts of underinvestment during the last eighteen months – a time when America claimed energy independence – when lower prices as well as the decarbonization movement and the rise in ESG (environmental, social and corporate governance).
Malek noted, “The group’s ability to control price depends on the efficacy of its spare capacity, which, at prevailing quotas, is set to fall to a 25 year low of just four percent of ttoal from an average of fourteen percent, well below the c.ten percent comfort level sought by consumers.”
In 2022, OPEC’s spare capacity will be two million barrels per day in the coming year while consensus forecasts are at 4.8 million barrels.
JP Morgan analysts also believe that by the first half of 2024, OPEC’s total capacity shortfall will extend to 3 million barrels per day, although OPEC+ has set a target of 49.1 million barrels per day during that time frame.
Because OPEC+ is once again at the proverbial wheel when it comes to the world’s oil production, Malek predicts that the company will continue to use this leverage to its benefit. It is likely to keep inventories low, which the organization believes will keep the market “in balance and . . . support optimal reservoir management through paced volume growth.” This could spell disaster for consumers the world over, however, with gas prices and inflation concerns already causing anxiety.
Between the end of 2021 and 2024, oil prices are expected to grow. Barrels of oil are likely to be as much as $90 per barrel during 2022 on average and $104 per barrel in 2023. However, during 2022 and 2023, prices could be between $125 and $150 per barrel.
Malzer added that the capacity shortfall and underperformance OPEC+ is experiencing comes at “a critical juncture as other global producers falter. We see $80 per barrel Brent as the marginal cost to deliver a balanced market in 2024 and beyond.”