Dwindling investments in the upstream sector of the oil industry, which is leading to supply deficits will ensure oil prices remain high for years to come.
Goldman Sachs, for example, sees Brent hitting $90 per barrel at the end of this year, up from $80 expected earlier. The key driver of Goldman’s higher forecast is global oil demand recovery amid still a weaker supply response from non-OPEC+ oil producers.
The investment bank also sees sustained higher oil prices in the coming years.
Fundamentals warrant higher oil prices, and the bank’s forecast for the next several years is $85 a barrel, Damien Courvalin, Head of Energy Research & Senior Commodity Strategist at Goldman Sachs, told CNBC earlier this month.
Oil demand will set record highs next year and the year after that, and we need to see a ramp-up in investment, he said.
“We’re facing potential multi-year deficits and the risk of significantly higher prices,” Courvalin told CNBC.
RBC Capital Markets is also bullish on oil prices in the medium term.
“We maintain the view that we have held all year – that the oil market remains in the early days of a multi-year, structurally strong cycle,” RBC analyst Michael Tran said in a note in mid-October carried by Reuters.
Last week, Morgan Stanley raised its long-term oil price outlook up by $10 per barrel to $70. BNP Paribas expects oil prices at nearly $80 a barrel in 2023, Bloomberg notes.
UBS expects oil prices “to remain well supported into next year,” with the market staying tight at least until the first quarter of 2022, due to the lowest inventories in OECD since 2015, only gradual easing of the OPEC+ cuts, and oil demand hitting 100 million barrels per day (bpd) in December 2021.
Global annual upstream spending needs to increase by as much as 54 percent to $542 billion if the oil market is to avert the next supply shortage shock, Moody’s said earlier this month.
“Our analysis demonstrates that upstream companies will need to increase their spending considerably for the medium term to fully replace reserves and avoid declines in future production,” Moody’s Vice President Sajjad Alam said.