Barclays (LON:BARC) raised its oil price forecasts for 2022 on Tuesday, noting a faster-than-expected inventory decline and a conservative supply reaction as justifications.
The bank boosted its Brent and West Texas Intermediate (WTI) average price forecasts for 2022 by $3 to $80 and 77 per barrel, respectively.
Brent Crude prices are expected to average $80 per barrel in 2022, according to Barclays, which increased its projection by $3, citing slower supply growth next year and faster inventory decrease by the end of this year.
Barclays also raised its forecast for average West Texas Intermediate (WTI) Crude prices in 2022 by $3 to $77 per barrel, citing the fact that it does not expect OPEC+ to rush to restore full output as planned if the market becomes oversupplied early next year.
Despite the possibility of weakening demand as COVID-19 cases flare-up in Europe, oil prices dipped on Tuesday on speculation that the US, Japan, and India will release crude stocks to keep prices in check.
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Almost all analysts and watchers, including OPEC+, have been warning for months against adding more output than planned, seem to agree that there would be an oversupply at the start of 2022.
The supply could arrive as early as the first quarter of 2022, according to Barclays, in comparison to a previous prediction of Q2 2022. However, inventory downturns this year are probable to drain commercial surpluses more quickly than previously forecast, resulting in a lower starting point for inventory builds.
Perhaps while OPEC+ would likely reduce or even halt its ongoing tapering of supply cuts in reaction to a meaningful slowdown in demand, Barclays said a protracted COVID-19 spike posed significant risks to its outlook since it may weigh on demand.
OPEC+, the Organization of Petroleum Exporting Countries and its partners, decided earlier this month to stick to their plans to increase oil output by 400,000 barrels per day (bpd) starting in December.
The planned, synchronized release of SPR from the US and big Asian customers, such as India and Japan, will have no substantial impact on oil prices, according to the UK bank.
Barclays anticipates a smaller deficit in Q4-21 to turn into a surplus a little sooner, in Q1-22, than in Q2-22, but that a lower starting point for prospective inventory additions next year can more than make up for it.
Barclay’s analysts said in a note:
“We believe that Strategic Petroleum Reserves are not a long-term source of supply, and that market involvement would have only a transitory effect.”
According to a Biden administration official familiar with the matter, the US is set to declare a borrowing of crude oil from its emergency reserve on Tuesday in an attempt to cut energy costs.
Last week, Goldman Sachs indicated that the market had already valued in a coordinated transfer of crude oil from national stockpiles, with the US discharging between 20 and 30 million barrels and the remainder of the group discharging a total of 30 million barrels.
Goldman Sachs stated previously this week that the recent drop in oil prices was unjustified by fundamentals, but that it still expects Brent to average $85 per barrel in Q4.