The price of Brent benchmark is likely to average $105 per barrel in 2022, an outlook by Fitch Solutions said. The agency revised its outlook for 2022 and 2023 upwards, thanks to rising demand in the commodity market.
An earlier outlook by Fitch Solutions saw the commodity average $100 per barrel in 2022 and $90 in 2023.
“The revision reflects a strong price performance over Q2 and expectation of greater and more persistent tightness in the global oil market than we had previously anticipated,” the analysts noted. According to Fitch Solutions, the EU’s partial ban on Russian oil imports is set to put pressure on supply, which remains limited despite several countries releasing oil from their strategic reserves.
Furthermore, Fitch’s analysts stated that production in OPEC+ countries is falling short of its monthly targets. “Questions are being asked as to the ability of Saudi Arabia and the UAE, which hold the bulk of global spare capacity, to significantly raise production in the near term,” the report said.
“Although we believe the capacity is there, the constraints of the OPEC+ deal and Saudi Arabia’s reluctance to run down its spare capacity will limit the upside to output in H2,” Fitch’s analysts added.
In addition, US shale oil producers are spending their free cash flow on shareholder dividends instead of expanding production.
According to Fitch Solutions, oil consumption will likely increase by 2.3% in 2022 and 3% in 2023, supported by the ongoing recovery of demand lost during the COVID-19 pandemic.
“However, the risks to this forecast are skewed heavily to the downside, as higher energy costs and a broader cost-of-living crisis threaten consumption,” the analysts said.
“Moreover, the economy is facing major headwinds in the form of persistent inflationary pressure and tightening financial conditions, heightened financial market volatility, rising social unrest and slowing growth in China, raising the risk of recession,” the outlook stated.
