Oil might reach $150 per barrel as OPEC+ will control supply

According to JP Morgan, oil prices will continue to rise. The bank estimates that as OPEC + Cartel controls supply and defends higher prices, Brent crude oil prices may reach US$150 per barrel in 2023.

This means that the Biden government’s strategic oil reserves release has little effect on the introductory price of oil.

According to Biden’s plan, the United States will release 50 million barrels of oil from the strategic oil reserve. 32 million barrels will be traded in the next few months, and 18 million barrels will accelerate previously authorized sales.

How does Omicron, the new COVID-19 variant, affect the prices?

The main driving force behind oil prices is the relationship between supply and demand. Omicron’s COVID-19 variant suppressed oil prices on Friday. Investors also worried that a potential national lockdown would reduce travel and thereby reduce the oil demand. However, JPMorgan Chase believes this price change is an overreaction.

Thus, oil demand might remain stable, and supply will continue to be the primary driver of oil prices in the next few years.

As OPEC+ firmly dominates oil prices, JPMorgan believes that the price of Brent crude oil will reach US$120/barrel in 2022. It may even rise to US$150/barrel in 2023, a 100% increase from the current level.

Increased supply from U.S. oil producers may help put downward pressure on oil prices. Though, the number of oil rigs in the U.S. is about half of 2019. Additionally, investment in the industry has been slow since oil prices briefly turned negative. 

This is one reason for rising oil prices, at least until U.S. oil production reaches pre-pandemic levels.

Oil price overview this week

Oil prices rose on Monday after the biggest one-day correction since April last year occurred late last week.

The international benchmark Brent crude oil futures reported US$74.60 per barrel on Monday, an intraday increase of more than 2.5%. In contrast, the U.S. West Texas Intermediate crude oil futures reported US$70.62, an increase of about 3.6%.

Due to the news of the newly discovered variant of Omicron COVID, several countries announced travel restrictions on Friday. This has prompted some energy market participants to worry that the return of the travel ban may weaken fuel demand.

Analysts believe Monday’s rebound in oil prices indicates that last week’s plunge may have been excessive. However, it is unclear how demand will be affected.