Bank Of America Sees Oil Prices Heading Toward $90 This Year

• Bank of America believes oil prices will head back above $80 in the second half of the year and rise toward $90 due to a supply deficit.
• While Bank of America’s forecast for the second half of the year was bullish, it believes the second quarter will average in the mid-$70s.
• The main drivers behind Bank of America’s bullish prediction are rising demand, the OPEC+ cuts, and a lack of response from U.S. shale.

Oil prices will return to above $80 per barrel in the second half of this year and could continue rising toward $90 due to a deepening supply deficit, Francisco Blanch, head of commodities research at Bank of America, told Bloomberg Television on Friday.

This quarter will be a little weaker, with oil prices averaging in the mid-$70s, Blanch said.  

"We'll get back up over $80 in the second half of the year, toward $90, because the deficit is going to get deeper over the course of the next six to nine months," BofA's head of commodities research added.  

The supply deficit will widen due to the OPEC+ cuts and the lack of response from U.S. shale, as seen in previous cycles, Blanch noted.

"Demand will eventually turn around and get a little better in the developed markets. So those three things start to push inventories lower again into the year-end and into 2024, and that's what gets you higher in terms of prices," he added.

Analysts in the latest monthly Reuters survey also see prices rising toward $90 per barrel by the end of this year, driven by Chinese demand and a tightening market following OPEC+'s latest production cuts.

So far this year, Brent prices have averaged around $82 per barrel.

Earlier this week, the International Energy Agency (IEA) said that the decline in oil prices over the past few weeks contrasts with an expected tightening of the market later this year when demand is set to exceed supply by nearly 2 million barrels per day (bpd).

Since the middle of April, oil prices have lost all the gains from OPEC+'s latest announcement of new production cuts.

"The current market pessimism, however, stands in stark contrast to the tighter market balances we anticipate in the second half of the year, when demand is expected to eclipse supply by almost 2 mb/d," IEA said in its monthly report.  

By Tsvetana Paraskova for Oilprice.com

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