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Analysts at Bank of America laid out three scenarios for the outlook on Brent crude oil prices.
The international oil benchmark should average $102 per barrel in 2022 and 2023, BofA said.
But it could drop to $75 in a recession or spike to $150 if European sanctions hit Russian supplies.
Oil prices could surge higher or plunge lower depending on what happens next in global markets, according to Bank of America.
Mounting fears of a recession have sent crude prices to their second consecutive weekly decline, but they remain above $100 per barrel amid still-high demand and constrained supply, while inflation, hawkish central banks and war still loom.
“Surging inflationary pressures from food to energy to services, coupled with fast paced interest rate hikes, suggest oil demand will struggle to fully recover to pre-pandemic levels until next year,” analysts wrote in a recent note.
The various crosscurrents and risks left BofA with a wide range of possibilities. For now, analysts don’t see a recession and still expect Brent crude to average $102 per barrel in 2022 and 2023, after averaging about $104 for the year to date.
On Friday, Brent oil rose 2.6% to nearly $113 per barrel, but is down from a high of $133 reached in March.
A recession, however, would trigger a pullback in fuel consumption, and oil prices could crash more than 30% from current levels, according to BofA’s estimates.
If growth does go south, any easing in monetary policy from central banks would support oil prices somewhat. So even in the event of a recession in 2023, BofA sees crude averaging more than $75 a barrel.
Then there is Russia’s war on Ukraine, and the sanctions that Western governments have imposed to punish Moscow.
As the EU’s Russian oil embargo phase in over the rest of the year, more and more barrels could disappear from global markets, hitting Russia’s output and sending prices skyrocketing.
If European sanctions push Russian oil production below 9 million barrels per day, then oil prices could spike to $150, BofA warned. Indeed, the long-term consequences of such supply disruptions have not been fully appreciated, it added.
“Yet the market does not seem to be pricing in a decade-long Russian supply crisis, as long dated oil prices have stayed firmly anchored in our long term oil price band of $60 to $80/bbl,” analysts said. “Thus, extended sanctions on Russian energy could act as a price floor even if near-dated spot oil price downside risks grow.”