Crude oil and natural gas prices are off to a hot start this year, driven by strengthening global demand, tighter supplies, and regulatory uncertainty.
But some Wall Street institutions and the U.S. Energy Information Administration (EIA) are split on whether this momentum will be sustained throughout 2022.
The EIA estimates that supply withdrawals averaged 1.4 million barrels per day (bpd) worldwide last year amid renewed demand. The EIA anticipates that consumption growth will ease as inventories are poised to increase.
STEO authors project that global crude production will increase by 5.5 million bpd this year, led by the United States, Russia, and the Organization of the Petroleum Exporting Countries (OPEC). They will represent 84 percent of the growth.
Global petroleum consumption will swell by 3.6 million bpd, while international stockpiles will advance by approximately 500,000 bpd this year, the EIA estimates.
Overall, West Texas Intermediate (WTI) crude oil prices will average $71.32 per barrel this year and $63.50 per barrel in 2023. Brent, the international benchmark for oil prices, is expected to average $75 per barrel in 2022 and $68 per barrel in the following year.
This is vastly different from other estimates on Wall Street in recent weeks.
In November 2021, JPMorgan Chase forecast that the price of a barrel of oil could soar to $125 in 2022 and $150 in 2023. The financial titan listed “the impacts of underinvestment” as one of the chief reasons for this call. It stated that it will prove challenging for OPEC and its allies (OPEC+) to avoid.
In its recent Global Commodities Research report, JPMorgan Chase noted that demand has been holding steady despite the many variables across the global economy.
“With signs of demand withstanding the Omicron variant, low stocks, and increasing market vulnerability to supply disruptions, we see the need for more OPEC+ barrels,” analysts wrote.
“As economies reopen and learn to live with an endemic COVID, the impact of the Omicron variant will likely be only limited on the expected rebound in 1Q demand growth.”
Analysts alluded to several key producing markets that could become problematic for global energy markets.
Will the Energy Industry Boost Output?
With crude prices hovering at their best levels since 2014, many strategists have been befuddled by the lack of exploration and production efforts. But this could change in the coming year.Rystad Energy, an independent energy research and data analytics firm, forecasts that global oil and gas investments will rise 4.3 percent annually to $628 billion, buoyed by a 14 percent increase in upstream gas and liquefied natural gas investments in 2022.
But uncertainty over President Joe Biden’s regulatory and broader green agenda has weighed on the industry, despite the spike in energy commodity prices, says Claudio Galimberti, senior vice president of analysis at Rystad Energy.
“Investment in oil and gas is not what it would be with $85 a barrel five years ago,” he told The Epoch Times. “Five years ago, you would see much more activity because there would be much less uncertainty from a regulatory perspective.”
In its Commodities Oil Drilling Report, JPMorgan Chase noted that the present level of crude activity “is already outpacing our average expectation for rigs (435) during the month.”
The EIA has shared the same sentiment regarding production. Writing in its STEO, the EIA projects that domestic crude output will climb nine consecutive quarters, swelling to 11.8 million bpd in 2022 and 12.4 million bpd in 2023.
“Production growth reflects oil prices that we expect will be sufficient to lead to continued increases in upstream development activity, which we forecast will proceed at a pace that will more than offset decline rates,” the EIA stated.
More supplies could be coming online over the next year or two as producers are expanding well completions in the Permian Basin of west Texas and New Mexico, the nation’s premier shale oil field.
These conditions could offer some relief at the pump by the third quarter, Galimberti said.
“Gasoline demand was weaker-than-expected and still below pre-pandemic levels, and if this becomes a trend, oil won’t be able to continue to push higher,” OANDA analyst Edward Moya said in a note.
Galimberti believes natural gas could hold firm at $4 in the first quarter, but the energy commodity’s impressive start to 2022 could ease once producers take advantage of the bull market.
February WTI crude futures fell $0.51, or 0.62 percent, to $82.13 per barrel on the New York Mercantile Exchange. February natural gas futures plunged $0.278, or 6.45 percent, to $4.048 per million British thermal units. February gasoline futures slipped $0.018, or 0.75 percent, to $2.3723 per gallon. February heating oil futures were flat at $2.5893 per gallon.