JP Morgan predicts oil prices to reach as high as $125 a barrel in 2022 and $150 per barrel in 2023, expecting spare capacity of the Organization of Petroleum Exporting Countries (OPEC) to fall through 2022, which will drive a higher risk premium to oil prices.
“We see growing market recognition of global underinvestment in supply,” wrote JP Morgan on Wednesday in a note. The American investment bank also added that assuming production at prevailing quotas, OPEC spare capacity will fall to 4% of total production capacity by the fourth quarter of 2022, from 13% in the third quarter of 2021.
JP Morgan said that the combination of underinvestment within OPEC+ and post-pandemic rising oil demand could lead to a critical point of a potential energy crisis as other global producers falter.
Oil prices rose to a two-month high on Wednesday with the international bench market Brent crude closed 1.1% higher at $84.67 per barrel, while West Texas Intermediate closed 1.8% higher at $82.64 a barrel. Both benchmarks have not seen this level since early November last year.
Meanwhile, U.S. crude oil stockpiles fell by 4.6 million barrels in the week ended January 7 to 413.3 million barrels to the lowest levels since October 2018. The draw was more than expected of a 1.9 million barrel draw from a Reuters poll.
