The World Bank, in its latest Commodity Markets Outlook forecast, has projected the average crude oil prices at $74 a barrel of crude oil (bbl) in 2022.
According to the report, Crude oil prices are projected to average $74/bbl in 2022, up from a projected $70/bbl in 2021 as oil demand strengthens and reaches pre-pandemic levels while natural gas and coal prices are expected to fall in 2022 as production constraints ease.
Data gleaned from the report showed that crude oil prices averaged $72/bbl in quarter three (Q3’2021), an increase of 7 percent on the previous quarter, but with prices fluctuating significantly during the period.
“Oil prices are forecast to average $74/bbl in 2022, up from a projected $70/bbl in 2021, before dropping to $65/bbl in 2023. Oil demand is expected to continue its recovery and reach its pre-pandemic level by the second half of 2022.
“Oil production is expected to increase as supply outages are resolved; as production responds to higher demand, particularly shale production in the United States; and as OPEC and its partners unwind the rest of their production cuts. Investment shortfalls in new production, including U.S. shale, pose an upside risk,” the report read.
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Investment in new oil production fell sharply in 2020 and has been slower to pick up than after the previous price collapses. Furthermore, the substitution of crude oil for coal and natural gas in heating and electricity production poses another upside risk. Additional outbreaks of COVID-19 remain a downside risk to oil demand, according to the report.
While noting this, the report has indicated the risks to the forecast to include adverse weather, further supply constraints, and new outbreaks of COVID-19.
Recall, crude oil prices have risen rapidly in recent months, with Brent reaching a seven-year high of nearly $85/bbl by mid-October.
Prices have risen as a result of production disruptions in the United States caused by Hurricane Ida, as well as an announcement by OPEC+ at its October meeting that the group intends to maintain previously announced production increases.
As the group continues to hold significant amounts of production capacity of the market, some oil-importing countries have called for larger increases. Higher natural gas prices have also supported oil prices, as oil becomes more competitive as a substitute in heating and electricity generation.
Natural gas prices increased by 69 percent in the third quarter of 2021, while coal prices increased by 44 percent, with some price benchmarks for both commodities reaching all-time highs.
While the latest report highlighted that the fluctuations in commodity prices such as natural gas, fossil fuel among others this year climax some of the challenges in transitioning to a zero-carbon economy.
It also indicated that cities have a key role to play, given that they account for around two-thirds of energy demand and greenhouse gas emissions.
