Take advantage of cheap gas while you can, as oil prices will be above $100 a barrel in 2023, according to Bank of America

Gasoline prices have now fallen for 14 consecutive weeks after hitting a record high of $5.01 a gallon on June 14.

On Monday, a gallon of regular gas averaged just $3.67 nationally, according to the american automobile association.

However, prices are still up about 15% from a year ago, and even though the Biden administration Party the recent relief of American drivers, Bank of America warns that the recent drop in gasoline prices may be over.

Investment bank analysts believe oil prices will reach $100 a barrel by year-end and stay there through 2023, leading to tougher times for consumers at the pumps gasoline. On Monday, Brent crude, the international benchmark, traded at $91 a barrel after falling to $88 at the start of the month.

“We don’t expect a major pullback in oil prices,” a Bank of America team led by commodities and derivatives strategist Francisco Blanch wrote in a research report on Friday. “Generalized inflation in the United States and elsewhere will likely lift the floor for oil prices, as OPEC and the U.S. government have signaled over the past two weeks.”

Bank of America’s argument is based on the idea that demand for oil in Asia was suppressed in 2022 amid COVID-19 shutdowns and a record heatwave in China that shuttered factories, but it should rebound next year, and prices should move with it .

China’s oil demand is expected to decline 2.7% this year, its first decline since 2002, according to IEA data.

“One factor that could easily push oil prices much higher over the next few months is the reopening of Asia,” the Bank of America team wrote. “In fact, as we approach 2023, we expect Asian oil demand to account for 86% of global growth, up from just 19% in 2022.”

In addition to growing oil demand in Asia, Bank of America analysts noted that OPEC recently agreed to reduce its oil production by 100,000 barrels per day. Although this is a relatively small cut, it is the first time in history that OPEC has cut production with oil prices above $90 a barrel, which could signal greater willingness of OPEC members to make future cuts, even if oil prices remain high relative to historical. standards.

The recent surge in natural gas and coal prices is another reason to be bullish on oil over the coming year, according to Bank of America. As Fortune As noted earlier, when the prices of these critical raw materials rise, utilities that generate electricity using them are often forced to switch to oil as their primary fuel source in order to maintain profitability. And when many utilities do this at the same time, it can lead to an increase in oil demand.

Finally, Bank of America analysts said that Biden administration statements gave them the impression that when oil prices reach $80 a barrel, the federal government could begin to fill the Strategic Petroleum Reserve (SPR).

In March, after the war in Ukraine, oil prices briefly exceeded $139 per barrel, President Biden released 180 million barrels of oil from the United States Strategic Reserve in hopes of lowering gas prices. But now that oil needs to be replaced, and Bank of America argues that when the government tries to do that, it will eventually put a floor under oil prices at a level that most Americans won’t like.

Forecast Risks

Throughout 2022, economists and analysts have repeatedly warned that this is one of the most difficult times in history to make forecasts. From international political tensions to global inflation, the number of variables that can blow up even the best forecasts is immense.

With that in mind, the Bank of America team noted that its pessimistic outlook carries multiple risks.

First, if a global recession hits, demand for oil will likely fall, which could lead to lower prices. Bank of America currently expects global economic growth of just 2.5% next year, and in a recessionary scenario, that number could drop sharply.

“In short, global GDP growth and oil demand have slowed significantly in recent quarters and oil prices could fall if economic activity weakens further,” the analysts wrote.

However, although the Bank of America team admitted that a “global recession presents a major downside risk to our views”, they added that they still believe that low oil inventories and production capacity should keep prices high until the end of next year.

Additionally, if Russian oil supply is disrupted beyond what it is now due to wartime sanctions against Ukraine, a $100 price target for oil would likely be low.

Bank of America expects Russia to supply about 10 million barrels of oil per day to the world market next year. And they estimate that for every million barrels of oil lost every day, prices could jump $20 to $25 a barrel.

“As such, a reduction in Russian production or further supply disruptions in the coming quarters…could quickly alert the oil market,” they wrote.

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Valerie J. Wallis