- Brent oil prices could return toward $100 a barrel as supply tightens in the coming months, JPMorgan said.
- Analysts expect oil demand to rebound by around 1.5 million barrels in the final quarter of this year.
- During this time, releases from the US Strategic Petroleum Reserve will cease and the EU’s partial ban on Russian oil will come into effect.
Oil prices have fallen steadily all summer – but that could change in the latter part of the year, with Brent crude heading back toward $100 a barrel as supply tightens, according to JPMorgan.
In a note released Wednesday, analysts backed their forecast that the international oil benchmark would hit $101 a barrel in the fourth quarter and $98 a barrel in 2023.
“Despite fears over the strength of the global economy, our balance sheets continue to suggest that the surpluses seen over the summer will turn into deficits beginning in October,” JPMorgan said.
Oil prices have been falling for months after peaking at around $122 a barrel in June. On Friday, Brent fell 5% to just below $86.
But JPMorgan listed four reasons why Brent may soon retest the $100 level.
- Global oil demand is expected to rebound by around 1.5 million barrels in the fourth quarter, especially as the natural gas crisis encourages greater conversion to oil.
- Releases from the U.S. Strategic Petroleum Reserve are set for this fall, with final deliveries potentially reduced or even canceled.
- A revival of the Iran nuclear deal, which could add another 1 million barrels a day to supply, is unlikely. On Thursday, a State Department official said efforts to restore the deal had “hit a wall.”
- The sanctions will limit supplies and the European Union’s ban on Russian oil imports by sea will come into effect by December 5. The partial embargo could leave Russia with an additional 4.1 million barrels per day to hand over to other customers. But Russia theoretically only has tanker capacity to re-ship 3.2 million barrels a day, the bank said, creating a shortage of 900,000 barrels. Yet China and India are able to absorb most of this volume.
While a stabilization in the U.S. dollar is not in JPMorgan’s baseline forecast, it could also add another tailwind to oil prices, analysts added.
Since the price of oil is largely denominated in dollars, gains in the value of the greenback can hurt demand as they make the commodity more expensive for foreign currency holders to buy. But dollar stability appeared a long way off on Friday, when the U.S. dollar index hit a new 20-year high, sending oil prices tumbling.
“The threat of a global recession continues to weigh on oil prices, with widespread monetary tightening over the past two days fueling fears of a hit to growth,” said Craig Erlam, senior market analyst at Oanda, in a note. “Central banks now seem to accept that a recession is the price to pay for bringing inflation under control, which could weigh on demand next year.”