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Oil analysis and price forecast for today, 2022 and beyond: Will it rise to new highs?

Oil analysis and price forecast for today, 2022 and beyond: Will it rise to new highs?

How do analysts see the Oil Price moving in the coming days and years? We look at some of the latest projections for 2022 and beyond.

The price of Oil has declined today, May 2, from $105 per barrel to $101 at the time of this writing.

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Oil Brands

When talking about the commodity oil traded on the financial markets, we can distinguish two types. The most popular, and also the most traded, is the American oil called WTI. The other popular variant is Brent.

West Texas Intermediate (WTI)

Light sweet crude oil (WTI) is widely used in US refineries and is an important benchmark for oil prices. WTI is a light oil with a high API density and low sulfur content. This determines the density of the oil in relation to water. WTI oil is widely traded between oil companies and investors. Most trading is done through futures through CME Group. The Light Sweet Crude Oil (CL) future is one of the most traded futures worldwide.

Most of the oil of this type is stored in Cushing, an important hub for Oklahoma's oil industry. Here are large storage tanks connected to pipelines that transport the oil to all United States regions. WTI is an important feedstock for refineries in the Midwestern United States and on the coast of the Gulf of Mexico.

Brent Crude Oil

Brent oil is an important benchmark for the petroleum rate, especially in Europe, Africa, and the Middle East. Its name is derived from the Brent oil field in the North Sea. This Royal Dutch Shell oil field was once one of Britain's most productive oil fields, but most of the platforms there have since been decommissioned.

The correlation between these two futures' price development is high, and we have seen several times in recent years that Brent's price was more than $10 higher than usual. At the end of 2020, the difference was approximately $3. Such differences are caused, among other things, by supply and demand, including the costs for shipping or storing oil.

Why is the oil price so volatile?

Oil prices are extraordinarily volatile because supply and demand for oil are inelastic or unresponsive to price changes. And that comes from the fact that oil is a must-have commodity for which there are few scalable substitutes. And on the supply side, oil production requires years of upfront capital expenditure to begin the flow. But when the oil starts flowing, the operating costs are low.

So when you have a commodity for which demand is very inelastic and supply is inelastic, whenever you have an imbalance between supply and demand, you need huge price swings to effectuate just small changes in consumption and production. So basically oil's a very inelastic commodity on the supply and the demand sides in the short run. That's the main reason why crude oil prices are so volatile.

How do analysts see the market moving in the coming months and years? Below, we look at some of the latest projections.

Oil Price Prediction for 2022: What Do Experts Predict?

Oil price prediction

EIA

The EIA expects the Brent price to average $108/b in 2Q22 and $102/b in the second half of 2022 (2H22). The U.S. Energy Information Administration expects the average price to fall to $93/b in 2023. However, this price forecast is highly uncertain, according to the latest weekly report:

“Actual price outcomes will depend on the degree to which existing sanctions imposed on Russia, any potential future sanctions, and independent corporate actions affect Russia’s oil production or the sale of Russia’s oil in the global market. In addition, the degree to which other oil producers respond to current oil prices, as well as the effects macroeconomic developments might have on global oil demand, will be important for oil price formation in the coming months. Although we reduced Russia’s oil production in our forecast, we still expect that global oil inventories will build at an average rate of 0.5 million b/d from 2Q22 through the end of 2023, which we expect will put downward pressure on crude oil prices. However, if production disruptions—in Russia or elsewhere—are more than we forecast, the resulting crude oil prices would be higher than our current forecast.”

BofA

In its Brent oil price forecast, Bank of America (BofA) Global Research expected Brent oil to average $110/b in 2022 under its baseline scenario. In its optimistic scenario, BofA predicted Brent could average at $95/b if the conflict is resolved and commodity flows roughly revert to six months ago.

However, its ‘ugly’ scenario (where restrictions on Russian commodity supplies cause significant structural deficits), BofA forecasted Brent could hit $130 this year.

BofA forecasted WTI to trade at an average of $105/b this year.

Fitch Solutions

On its note on 24 March, Fitch Solutions projected Brent to average at $82/bbl and WTI to trade at $73/b this year. However, the consulting firm will revise its forecast in the coming weeks.

Fitch Solutions expects to see continued price swings as markets seek to gauge supply-and-demand impacts stemming from the conflict in Ukraine.

Fitch Ratings has raised its crude-oil price forecast 2022. For this year, Fitch Ratings revised its expectations for Brent to $100/b from its previous estimate of $70/b under the base-case scenario. In addition, it raised its WTI price forecast to $95/b from $67/b.

ANZ research

On 25 March, ANZ Research set its Brent oil-price forecast for 2022 at $115.3/b, up from $$71.1/b in 2021, while it expected WTI to trade at $112.3/b.

Oil Price Forecast 2023 – 2025

Fitch Solutions set Brent's oil price target of $83/b in 2023, up from $82 this year. It also expected WTI to trade higher at $74/b, but the company has said it will revise its oil prices outlook in the coming weeks.

On the other hand, ANZ Research projected Brent and WTI to retreat to $88.5/b and $87.4/b, respectively, in 2023. BofA also forecasted Brent and WTI to drop to $95/b and $90/b, respectively, in 2023.

Fitch Ratings estimated Brent will ease to $80/b in 2023, but this has been revised from its previous forecast of $60/bbl. Brent was expected to trade at $60/b in 2024 and $53/b in 2025 and in the long term.

As for WTI, the company expected the US oil futures to trade at $76/bbl next year, compared to an estimate of $95 in 2022. Fitch Ratings forecasted WTI to drop to $57/b in 2024 and further to $50/b in 2025 and beyond.

EIA expects the average price to trade at $93/b in 2023.

Oil Price Forecast 2025 – 2050

The EIA predicts that by 2025 Brent crude oil's nominal price will fall to $66/b. By 2030, world demand is seen driving Brent prices to $89/b. By 2040, prices are projected to be $132/b. By then, the cheap oil sources will have been exhausted, making it more expensive to extract oil. By 2050, oil prices could be $185/b.

WTI per barrel price is expected to fall to $64 per barrel by 2025, increasing to $86 by 2030, $128 by 2040, and $178 by 2050.

The EIA assumes that demand for petroleum flattens out as utilities rely more on natural gas and renewable energy. It also assumes the economy grows around 1.9% annually, while energy consumption decreases by 0.4% a year.

In July 2008, oil prices reached a record high of around $133/b. Then they dropped to about $40/b in December before rising to $123/b in April 2011. The Organization for Economic Cooperation and Development (OECD) previously forecasted that Brent might go as high as $270/b. The OECD based its prediction on skyrocketing demand from China and other emerging markets.

*When looking for oil-price predictions, it's important to remember that analysts' forecasts may be wrong. This is because their projections are based on a fundamental and technical study of WTI and Brent oil commodities’ historical price movements. But past performance and forecast are not reliable indicators of future results.

It is essential to do your research and always remember your decision to trade depends on your attitude to risk, your expertise in the market, the spread of your investment portfolio, and how comfortable you feel about losing money. You should never invest money that you cannot afford to lose.

How Did the Price of Crude Oil Change Over Time?

Below is a chart showing the price for West Texas Intermediate (NYMEX) Crude Oil over the last 5 years. The shown prices are in U.S. dollars. On the chart, you can clearly see the monstrous drop that happened earlier this year, and how the price has been going up and stabilizing in the months thereafter.

Oil price forecast

A Recent History of Oil

At the end of April 2020 (due to the Saudi and Russia conflict - more on that later), the oil price crashed, and the May WTI future even dipped below $0. The stock markets recovered strongly during the summer, and the oil price had also found its way up again. In August, the oil price rose well above $ 40 a barrel. With that price, the largest oil companies got some air also, but it is still far from enough for most to make a profit.

At the beginning of September, the oil price had suddenly fallen hard again. Simultaneously, with the mini-crash with the US stock markets, a crude oil barrel's worth dropped by about 15% to below $37 a barrel. This brought the oil price back below $40 a barrel for the first time since July. The drop is partly because Saudi Arabia had lowered its sales prices for October and the fear that the number of COVID-19 infections will increase rapidly in several countries.

The rebound in the number of infections could thwart the global economic recovery and decrease fuel demand. With several refineries lowering tariffs again, it seems they want to prevent oil stocks from rising back to record levels. The oil price was able to recover so strongly in recent months, thanks to the OPEC + countries' agreements regarding the reduction in production. However, due to the crisis, many countries are looking for additional income sources. Therefore, some countries are not fully complying with the agreements made. As a result, more oil flows into the market, which also has a depressing effect on oil prices.

March 9th, 2020: 30% Oil Price Crash

Monday, March 9th, can go into the history books as "Black Monday" for the oil price. Negotiations between Saudi Arabia and Russia had come to nothing.

The oil price was under pressure in previous months due to the spread of the coronavirus. The world economy was on the back burner, and as a result, the oil demand had declined considerably. By limiting oil production, the countries that are part of the oil cartel hoped to stabilize or increase the price themselves. Saudi Arabia, in particular, is strongly in favor of limiting oil production.

Saudi Arabia was now trying to force Russia in another way to join the OPEC plan. The Saudi’s were going to increase production considerably and flood the market with oil. As a result, the price of a crude oil barrel had opened more than 30% lower, the lowest price since 2016. A low oil price is disastrous for most countries. Most OPEC countries are almost entirely dependent on oil revenues.

America's shale farmers may be hit hardest. The shale revolution seems to be built more and more on quicksand, as costs remain high and the new resources that are found have a much shorter lifespan. Even with an oil price of around $60 a barrel, many of these producers were already struggling. The unrest surrounding the coronavirus also makes it difficult to raise external capital. With Saudi Arabia pushing the oil price further down, the situation seems to be untenable for many producers. Players with a fragile balance and relatively high costs are unlikely to make it. What Saudi Arabia failed to achieve in 2016 now seemed to have a good chance of success.

April 21st, 2020: WTI Goes Below Zero

In April 2020, we saw a situation in the oil markets that has never occurred before. The West Texas Intermediate Crude Oil (WTI) futures contract for May fell more than 100%. The price fell during the day and took an unprecedented dive later in the evening to $ -37.63/barrel, meaning that oil producers would indeed have to pay buyers to collect the oil.

This is mainly because the storage capacity in Cushing, Oklahoma is full. And it is precisely there that this oil is delivered. Traders and large companies who were long yesterday but ran out of storage capacity or liquidity to purchase oil were forced to close futures before expiry.

Shale Oil Influence

Oil production increased rapidly, and OPEC was not happy about this. They saw the increase in supply in the Middle East as competition. OPEC, therefore, came up with the idea of ​​fully opening the oil taps. The production costs of shale oil were many times higher. The result was a drop in oil prices from about $110 a barrel to below $30 at the beginning of 2016. OPEC hoped to wipe out shale farmers in this way.

This strategy failed, and the OPEC countries themselves ultimately suffered considerable disadvantages from this strategy. For years they saw their income more than halved. In the meantime, the shale farmers have learned to work cheaper and more efficiently, and they are already profitable at a lower oil price. What’s typical of this form of oil extraction is that production can be increased quickly.

OPEC Influence

Demand for oil will remain stable in the coming years. But it is also apparent that there is a lot of extra supply on the market now that American oil production is rapidly increasing. Shale oil, in particular, is extracted from the ground here. The shale revolution was set in motion in 2014 by the sharp rise in oil prices. This form of oil extraction was therefore profitable, despite the high production costs. Due to the attractive market, the oil companies sprang up like mushrooms.

OPEC is trying to limit production to keep the oil price at a reasonable level. Most countries benefit from a somewhat higher, but in any case, stable, oil price. According to OPEC, the oil industry must invest more than $11,000 billion over the next 20 years. If producers don't do that, there will be a shortage. In principle, shale farmers have already invested enough in recent years to absorb a large part of these shortages.

Furthermore, OPEC states that demand continues to increase despite the emergence of electric cars and the like. OPEC writes that the massive expansion of air travel creates a greater demand for oil than the emergence of alternative energy sources can diminish.

Since the low oil price in 2016, OPEC has been trying to support the low oil price. This is done by agreeing on production restrictions with all countries that are members of OPEC. The agreements do not always go smoothly, as Iran and Iraq do not always adhere to these agreements. On the other hand, the US and other countries continue to produce more and more oil, putting oil prices under pressure for a long time.

Factors That May Affect the Price of Crude Oil

We know that oil is an indispensable raw material in the world and that it is used both as raw material and fuel to make plastics, pharmaceuticals, and many other products. Hence, the demand for oil remains strong, and these industries' health will determine most of the world's oil demand. If demand from these industries increases while production stagnates, it will lead to higher prices for this commodity. Of course, and vice versa, if these industries are in a recession, their oil demand will be lower, so demand will decline. If production remains stable or increases in this case, it will logically lead to a drop in the price of a crude oil barrel.

As you will have understood, it is mainly by analyzing the difference between supply and demand that you will determine how the price or price of crude oil will evolve.

It should also be noted that this analysis is slightly more complex today than it used to be. Until a few years ago, it was pretty easy to understand how these prices would behave. At the time, the US was the largest consumer of crude oil. On the other hand, OPEC was the main supplier to the market in terms of production. But over time and the years, this situation has become more complex and slightly more confusing. One explanation for this phenomenon is that oil drilling technologies have improved greatly and resulted in better supply. Besides, we have seen the emergence of alternative solutions for this production. Finally, new players have also joined, including China, a major oil consumer in the world.

Below we have listed factors that change the supply or demand for oil and thus contribute to the evolution of this commodity's price and price.

  1. Production data in barrels per day from OPEC countries. Too much production generally leads to lower oil prices per barrel and vice versa. US crude oil inventory data is published weekly, which also affects WTI.
  2. Supply, which is published weekly on the economic calendar. Big supply also contributes to falling prices, while little supply leads to higher prices.
  3. The international geopolitical situation. Conflicts affecting the oil-producing and exporting countries often influence the development of the price per barrel.
  4. The value of the US dollar on the currency market. As a barrel of oil is denominated in dollars, this currency will be weaker, and more oil purchases will be stimulated by holders of other currencies.

Final words

Make sure to create a free demo account on CAPEX.com! CAPEX.com is a useful platform for both novice and expert traders. You will be up to date on interesting updates about crude oil as an investment asset, and the user-friendly interface will come in handy if you decide to trade crude oil or any other commodity.

If you look at the price changes of oil for a while now, you will start to see a pattern, and as an investor, you can respond smartly to this.

If you want to invest in oil, it is a good investment to get in when the oil price is at a certain bottom. Of course, there is no guarantee that oil prices will ever rise as much as in the past. Oil is a limited resource and is probably the most precious material in the world. Investing in commodities is one way to improve your overall investment portfolio.

Oil price forecast FAQ

Will oil prices go back up?

Since the major drop in March of 2020, the oil price has been going up and stabilizing in the months thereafter.

Where are oil prices going?

Fluctuations notwithstanding, many experts forecast that crude oil prices will steadily grow in the long term. This mostly has to do with oil becoming more and more scarce a commodity, and it’s becoming more difficult to extract the crude oil.

Will oil prices go down?

The price of crude oil fluctuates on a daily basis. Its price can see a major drop due to various factors, including too much production, lack of storage, geopolitical conflicts, the value of the US dollar, etc.

What is the prediction for oil prices?

Most oil price predictions assume a positive outlook in the long run. As the global economy slowly returns to (albeit new) normal, oil prices should also be stable, if not super-high.

Will the oil price recover?

Since the major drop in March of 2020, the oil price has been going up and stabilizing in the months thereafter.

Why has the oil price dropped in 2020?

A global economic conflict resulted in a total drop in oil prices in March of 2020. Saudi Arabia initiated a price war with Russia, “helping” a 65% quarterly fall in the oil price. In the first few weeks of March, US oil prices fell by 34%, while crude oil fell by 26%, and Brent oil fell by 24%.

What is the current oil price?

Take a look at the online oil price chart to see current changes in US Dollars.

This information/research prepared by Miguel A. Rodriguez does not take into account the specific investment objectives, financial situation or particular needs of any particular person. The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views and consequently any person acting on it does so entirely at their own risk.

The research provided does not constitute the views of KW Investments Ltd nor is it an invitation to invest with KW Investments Ltd. The research analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report.

The research analyst is not employed by KW Investments Ltd. You are encouraged to seek advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit that conforms to your specific investment objectives, financial situation or particular financial needs before making a commitment to invest.

The laws of the Republic of Seychelles shall govern any claim relating to or arising from the contents of the information/ research provided.