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Brent crude price is forecast at $90 per barrel next year with oil supply and demand likely to remain roughly balanced, BofA Global Research said in a note on Wednesday.
For WTI, the analysts expect price to be $85 per barrel next year.
Saudi Arabia’s voluntary production cuts of 1 million barrels per day (bpd) and Russia cutting August exports by 500,000 bpd have pushed oil prices above $80 per barrel. On Wednesday, Brent crude futures traded on ICE at $84.8 per barrel. However, China's sluggish economic growth is also weighing on expectations of demand recovery.
BofA said any move above $100 would require deeper OPEC+ supply cuts which are unlikely, unplanned supply disruptions or stronger demand conditions which are unexpected given a moderate GDP growth forecast.
BofA economists expect world GDP rising 3% in 2023 and expanding by 2.8% in 2024.
In addition, the correlation of oil to GDP is not as strong as they used to be and OPEC+ now has more spare capacity due to the deep cuts it just implemented, the report said.
"On this point, to offset a partial unwind of the Saudi "lollipop cut" next year would likely require global GDP growth of 3.5% to 4% in 2024, 0.7% to 1.2% higher than BofA expectations. Also, recession risks have faded but not disappeared and high nominal and real interest rates globally will increase refinancing risks in the next year."
According to BofA assumptions, Saudi production will revert back to 9.5 million bpd in 2024 as the cut is unwound over the coming months resulting in a relatively balanced market in 2024 following a sustained deficit in H2 2023 of 1.3 million bpd. "Historically, a 500,000 bpd upward revision to oil demand, other things being equal, would trigger a $10/bbl move up in average prices," the note said.
Meanwhile, the EIA revised up its output forecast for the second half of this year to 10.6 million bpd recently, up by 360,000 bpd from its previous forecast.
(Writing by Brinda Darasha; editing by Seban Scaria)
