A rally in oil prices could stall as recession fears and Covid flare-ups in China slow demand and counter supply risks from sanctions on Russia and Opec+ output constraints, a Reuters poll showed on Friday.
A survey of 35 economists and analysts forecast Brent crude would average $105.75 a barrel in 2022, down from a forecast of $106.82 in June marking the first downward revision to the monthly poll since April.
The global benchmark has averaged about $105 a barrel this year.
“The focus is slightly shifting away from supply disruptions towards crude demand destruction due to global recessionary fears,” said Edward Moya, senior analyst with OANDA.
The demand growth forecast for this year was also slashed to a range of 1.4 to 2.5 million barrels per day (bpd) from 2.3-5 million bpd in the previous poll.
Rapid interest rate hikes from major central banks coupled with travel restrictions in China, the world’s biggest crude importer, have soured the oil demand outlook, analysts said.
However, Western sanctions on Russian oil and Opec+ producers maintaining a leash on supply will put a floor under the prices, analysts noted.
“We still think the war in Ukraine and the tight market will drive prices in the short run, with the price of dated Brent trading in a range of $100-120/barrel for the rest of the year,” said Matthew Sherwood, commodities analyst at EIU.
US crude was seen averaging $101.28 a barrel in 2022, down from June’s $102.82 consensus.
The next meeting of the Organization of the Petroleum Exporting Countries and allies including Russia, together called Opec+, is set for August 3 and will be closely watched as their current output pact expires in September and the United States has stepped up calls for more production.
“Opec and the US in general would like to continue boosting production in the near term, but there are limits to the pace of increase and it is unlikely that production growth will be faster than market expectations,” said DBS Bank analyst Suvro Sarkar.
RECORD REVENUE
Meanwhile, the two largest US oil companies, Exxon Mobil and Chevron Corp, posted record revenue on Friday, bolstered by surging crude oil and natural gas prices and following similar results for European giants a day earlier.
The US pair, along with UK-based Shell and France’s TotalEnergies, combined to earn nearly $51 billion in the most recent quarter, almost double what the group brought in for the year-ago period. All four have ramped up share buybacks in recent months, capitalising on high margins derived from selling oil and gas.
Exxon outpaced its rivals with second-quarter net income of $17.9 billion, several billion dollars ahead of its previous record reached in 2012, which was aided by asset sales in Japan. The fifth major, BP Plc, reports next week.
The companies posted strong results in their production units, helped by the surge in benchmark Brent crude oil futures , which averaged around $114 a barrel in the quarter.
High crude oil prices can cut into margins for integrated oil majors, as they also bear the cost of crude used for refined products. However, following Russia’s invasion of Ukraine and numerous shutdowns of refineries worldwide in the wake of the coronavirus pandemic, refining margins exploded in the second quarter, outpacing the gains in crude, adding to earnings.
The results from the majors are sure to draw fire from politicians and consumer advocates who say the oil companies are capitalising on a global supply shortage to fatten profits and gouge consumers. US President Joe Biden last month said Exxon and others were making “more money than God” at a time when consumer fuel prices surged to records.
Earlier this month, the United Kingdom passed a 25% windfall tax on oil and gas producers in the British North Sea. US lawmakers have discussed a similar idea, though it faces long odds in Congress.
A windfall tax doesn’t provide “incentive for increased production, which is really what the world needs today,” said Exxon CFO Kathryn Mikells, in an interview with Reuters.
The companies say they are merely meeting consumer demand, and that prices are a function of global supply issues and lack of investment. The majors have been disciplined with their capital and are resisting ramping up capital expenditure due to pressure from investors who want better returns and resilience during a down cycle.
“In the short term (cash from oil) goes to the balance sheet. There’s no nowhere else for it to go,” Chevron CFO Pierre Breber told Reuters.
Worldwide oil output has been held back by a slow return of barrels to the market from the Organization of the Petroleum Exporting Countries and allies, including Russia, as well as labour and equipment shortages hampering a swifter increase in supply in places like the United States.
Exxon earlier this year more than doubled its projected buyback programme to $30 billion through 2022 and 2023. Shell said it would buy back $6 billion in shares in the current quarter, while Chevron boosted its annual buyback plans to a range of $10 billion to $15 billion, up from $5 billion to $10 billion.
— Reuters