By Samuel Indyk
Investing.com – US banking giant JPMorgan has said they expect oil to overshoot to $125/barrel next year and $150/barrel in 2023, citing lower than expected OPEC spare capacity.
JPM said it estimates ‘true’ OPEC spare capacity next year to be around 2 million barrels per day (BPD) below consensus estimates of 4.8 million bpd.
The bank said it believes a 3-month pause to the OPEC+ plan of increasing production by 400,000 bpd in monthly increments will be required in the first half of next year to balance the market, however, the bank then believes OPEC+ will struggle to deliver monthly growth of over 250,000bpd once reinstated.
JPM argues that the group’s ability to control prices depends on the efficacy of its spare capacity, which at prevailing quotas is set to fall to a 25-year low of just 4% of total capacity, from an average of 14% between 1995 and 2020.
“We see LT (long-term) $80/barrel Brent (real) as the marginal cost to deliver a balanced market in 2024+,” JPM analysts said in the research note. “Incorporating our model of OPEC+ true capacity, we expect oil to overshoot to $125/barrel in 2022 and $150/barrel in 2023.”
OPEC meeting
The Saudi Energy Minister Abdulaziz bin Salman confirmed that OPEC has delayed its technical meetings to later this week to give themselves more time to assess the impact of the new Omicron variant on demand and prices. The OPEC+ group is still scheduled to hold its decision making meeting on Thursday, when it will decide whether to roll back previous production cuts and increase production by another 400,000bpd in January.
Abdulaziz Bin Salman declined to comment on current OPEC+ plans ahead of the meeting, however, he said he was "not concerned" when asked how the new strain may impact oil demand.
On Friday, Brent crude futures dropped by almost 12% as some countries reinstated travel restrictions following the discovery of the Omicron variant. However, the crude benchmark has staged a recovery on Monday and trades around 5% higher today at around $75/barrel.