Near Term Oil Price Dynamics Distorted on Multiple Levels

Near Term Oil Price Dynamics Distorted on Multiple Levels
Near term Brent oil price dynamics continue to be distorted on multiple levels.

Near term Brent oil price dynamics continue to be distorted on multiple levels with the U.S. and Saudi Arabia vocally sparring after the recent OPEC+ cut.

That’s what a new BofA Global Research report outlined, adding that the impact of the dollar is another consideration.

“Over the past few weeks the US$ index has seemingly rolled over,” the BofA Global Research report stated.

“The effect on dollar priced commodities appears obvious - a weaker dollar supports affordability in other currencies; it follows that if the US$ has peaked, oil may find another incremental tailwind in addition to all other supply/demand fundamentals that look increasingly pointed to tighter supply/demand fundamentals over the next year,” the report added.

In the report, BofA Global Research noted that only concerns over a broader market recession provide some offset to concerns over softer demand, but added that “even the worst recessions would imply a demand impact that could be managed by sustained intervention by OPEC+”.

“We continue to believe steep backwardation in the forward curve is a poor indicator of the oil market outlook,” the BofA Global Research report stated.

“For now, we continue to base sector valuations at long term $80 Brent, some 10 percent above the current three year strip; but increasingly this could understate the signal from OPEC+ that could hold Brent in a $80-$100 range,” the report added.

In a report sent to Rigzone recently, analysts at Fitch Solutions Country Risk and Industry Research revealed that they were holding on to their current forecast for Brent crude to average $105 per barrel in 2022 and $100 per barrel in 2023. They stated in the report, however, that they were likely to make downward revisions this month.

In a separate market note sent to Rigzone on October 18, Rystad Energy noted that Brent is likely to hit $100 per barrel by the end of the year. In its latest short term energy outlook, which was released on October 12, the U.S. Energy Information Administration revealed that it saw the Brent spot price averaging $102.09 per barrel this year.

Brent Crude fell steadily from June to the end of September, closing at $123.07 per barrel on June 9 and $84.06 per barrel on September 26. Since then, Brent rose to almost $98 per barrel earlier this month, before dipping to just over $90 per barrel on October 20 and closing at $96.96 per barrel on October 27. At the time of writing, the price of Brent is trading at $96.65 per barrel. 

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