(Editor’s Note: This story is one in a series providing expert forecasts for the global natural gas and oil markets in 2022. Look for NGI’s extensive coverage of what happened in 2021 and what can be expected in 2022 and beyond in terms of prices, the LNG export markets, ESG, Mexico’s production and project prospects, North American midstream infrastructure plans and exploration and production strategies.)

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With global benchmark oil prices already hovering around $80/bbl on strong demand early in the year — despite a surge in coronavirus cases — analysts said consumption could reach record levels this year and potentially drive the cost of crude into the triple digits.

“Clearly this Omicron still presents uncertainty,” said Samco Capital Markets Inc.’s Jacob Thompson, a managing director, referring to the coronavirus variant that began to spread rapidly across the United States in December.

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However, he noted public health officials are increasingly confident the effects caused by Omicron appear less severe than prior strains. Leading countries around the world have signaled they are intent on avoiding new lockdowns. By extension, the global economic recovery and travel rebound that took root in 2021 is widely expected to continue through this year, driving demand for fuels derived from oil.

Thompson said those factors combined pave a path to even higher global crude prices – after a more than 50% surge in 2021. He noted that supply trails demand entering the year. He also emphasized that inflation has permeated nearly every sector, including oil services, and that could also put further upward pressure on prices.

“There’s a pretty solid foundation for the bulls’ case,” he said.

JPMorgan Chase & Co. analysts agreed. “With signs of demand withstanding the Omicron variant, low stocks and increasing market vulnerability to supply disruptions, we see the need” for more oil to align supply/demand. The analysts expect Brent crude, the international benchmark, to average $88 in 2022, up from around $70 last year.

Brent traded above $80 on Monday.

Goldman Sachs Group analysts said demand could reach a new high this year, and oil prices could top $100 at the 2022 peak as a result. They look for prices to average about $85 this year.

The International Energy Agency’s (IEA) latest forecast called for global crude demand to grow by 3.3 million b/d in 2022, reaching pre-pandemic levels of 99.5 million b/d, after gaining 5.4 million b/d in 2021. Goldman analysts said demand could rise even higher, potentially eclipsing the 100 million b/d level.

Damien Courvalin, the investment bank’s head of energy research, told reporters during a recent briefing that oil consumption had returned to pre-pandemic levels prior to Omicron and the new variant appears to only have temporarily dented demand. He envisions strong demand for travel fuels throughout the year ahead, ultimately resulting in record global consumption of gasoline and jet fuel.

“The supply response has been slow,” he said on CNBC, and “we need higher prices to balance the market.”

U.S. oil producers maintained production at a 2021 high during the final week of last year. But they did not reach that level until mid-December, and American output remained more than 1 million b/d below pre-pandemic levels.

Crude demand, meanwhile, is climbing. Over the final four weeks of 2021, U.S. petroleum consumption was up 14% from a year earlier to 21.4 million b/d, according to EIA’s Weekly Petroleum Status Report. In that month-long stretch, gasoline demand climbed 15%, while distillate fuel rose 12%. Jet fuel consumption spiked 37%.

For the final week of 2021, U.S. commercial crude inventories, excluding those in the Strategic Petroleum Reserve, decreased by 2.1 million bbl from the previous week. At 417.9 million bbl, stocks were 8% below the five-year average.

Can Supply Meet Demand?

Major producers globally are also playing catch-up.

The Organization of the Petroleum Exporting Countries (OPEC), headed by Saudi Arabia, and a Russia-led group of allies known as OPEC-plus, last week agreed to boost production by another 400,000 b/d in February, continuing a pace of monthly supply increases the cartel began in August.

OPEC-plus is unwinding supply cuts of nearly 10 million b/d made in April 2020 amid the initial oil demand destruction imposed by the coronavirus.

Cartel officials last week cited Omicron as a concern but said they were confident governments around the world would not institute major new economic restrictions to slow spread of the disease, enabling the travel and business activity that fueled the resurgence in oil demand last year to continue.

While output steadily climbed in the second half of 2021 and OPEC-plus officials expect global supply to align with demand in the first half of 2022, analysts noted that some countries are struggling to ramp up. As such, output may not keep pace with any further accelerations in demand.

Libyan production dropped early this year amid political turmoil and pipe leaks, while Nigeria and Angola have struggled to meet production targets in recent months because of deteriorating infrastructure. Russian output also has lagged OPEC-plus targets at times. This may require other countries, including the United States, to pump more oil to keep pace with demand that is proving resilient amid the pandemic.

“Real-time transportation data globally suggests there has not been any significant impact on oil demand thus far from Omicron,” Rystad Energy analyst Bjørnar Tonhaugen said. “Ongoing outages in Libya, struggling production recovery in Nigeria and reduced expectations for Russian production capacity add bullish weight to the scale from the supply side.”

Analysts said even higher prices may be needed to entice American producers to ramp up further, given investor demands for conservative postures on crude amid the gradual energy transition away from fossil fuels.

“But there is still plenty of potential from here for prices to keep trending higher,” Thomas Saal, StoneX Financial Inc.’s senior vice president of energy, told NGI. “There probably will be more variants and various impacts, but it looks like governments’ reactions will not be as dramatic as what we saw at the start of this thing, and that leaves the market open for more demand.”