Crude oil prices could crash to $65 per barrel by the end of 2022 and further slump to $45 per barrel by the end of 2023 if the global economy experiences a recession that could cripple fuel demand.
According to Bloomberg, this warning is contained in a report by Citigroup, where it stated that the assumption for this forecast is based on global recession, lack of intervention by the Organization of Petroleum Exporting Countries and its allies (OPEC+) to boost supply and decline in oil investments.
The global crude benchmark, the Brent crude, traded at $103.2 per barrel as at Tuesday evening, while the American WTI traded at $99.26 per barrel.
What Citigroup analysts are saying
Citigroup analysts including Francesco Martoccia and Ed Morse, in the note wrote, “For oil, the historical evidence suggests that oil demand goes negative only in the worst global recessions.
‘’But oil prices fall in all recessions to roughly the marginal cost.’’
While warning that oil could crumble in case of a recession, Citi’s analysts currently do not expect the U.S. economy to slide into a recession.
Fears of a recession has seen crude oil prices drop in recent weeks, experiencing its first monthly slump in June for the first time in 8 months after the market was destabilized by aggressive interest rate hikes from Central Banks, including the US Federal Reserves, as the developed economies are faced with the highest inflation figures in about 4 decades.
Citi’s global head of commodity research, Ed Morse, has been bearish on oil for months, and said in June that crude oil is overvalued by a lot and should be in the $70s range.
Other banks more bullish on oil forecast
- However, some other banks, especially Goldman Sachs, have been more optimistic or bullish on crude oil forecast.
- Goldman Sachs’ Global Head of Commodities Research, Jeffrey Currie, had last week said that the upside risk in crude oil and refined products “is tremendously high right now.” The bank said that the recent pullback in oil prices could be a buying opportunity because prices are set to go higher from here this summer.
- Currie said, “Ultimately, remember, the only way of solving these problems is to increase investment, so we stick to our guns of oil prices moving into the summer up into $140 a barrel range given record-level cracks, and that’s going to be a lot more upside to product prices.’’
- The Russia-Ukraine war which has negatively impacted on supplies has seen oil and gas prices soar this year.