Oil Prices Buck Recession Trend

Oil Prices Buck Recession Trend
As investors are increasingly concerned about recessionary risks, Brent oil prices have bucked this trend.

As investors are increasingly concerned about recessionary risks, Brent oil prices have bucked this trend, reflecting significant supply destruction in the wake of Russia’s invasion of Ukraine, BofA Global Research outlined in a new report sent to Rigzone recently.

In the report, BofA Global Research acknowledged one of the “key lessons” from this century’s three recessions has been an average 66 percent drop in oil prices and noted that applying such a drop to today’s Brent oil price “would leave us with little more than $35 per barrel at the trough of any upcoming recession”.

BofA Global Research stated in the report, however, that, in “stark contrast” to conditions ahead of previous recessions this century, “we believe the energy sector today offers significant cushions mitigating the impact of any recessionary demand destruction on the sector’s financial health”.

“Sector cash flows are higher today than in previous cycles - partly due to simultaneous supply destruction in the wake of Russia’s invasion of Ukraine pushing gas prices as well as refining margins to record levels,” BofA Global Research said in the report.

“Using $105 per barrel Brent, we still see average 21/44 percent upside to 2022 consensus for Big Oil earnings and free cash flow - indicating this still ‘hidden’ earnings upside,” BofA Global Research added in the report.

In a separate report sent to Rigzone on June 14, BofA Global Research highlighted that a record net 73 percent of participants in its European fund manager survey expected slower global growth, while a net 54 percent expected a European recession over the next year.

At the time of writing, the price of Brent crude oil is trading at $117.04 per barrel. Brent started the year trading around the $80 per barrel mark, before closing at $127.98 per barrel on March 8. The commodity went on to close above $120 per barrel on several more occasions this year.

To contact the author, email andreas.exarheas@rigzone.com


What do you think? We’d love to hear from you, join the conversation on the Rigzone Energy Network.

The Rigzone Energy Network is a new social experience created for you and all energy professionals to Speak Up about our industry, share knowledge, connect with peers and industry insiders and engage in a professional community that will empower your career in energy.