upward price pressure from the decline in Russian supply will be partly offset by extended lockdowns in China (oil supply)

Our 2022 average annual Brent crude oil price forecast rises to US$ 111/barrel from US$ 89/barrel

Due to supply risks stemming from the Russia/Ukraine crisis, multinationals should factor a higher oil price outlook into their business planning and strategic assumptions. Although high oil prices will be a boon to industrial firms serving the oil sector and for firms operating in major oil-producing countries (outside Russia), the impact on most companies will be in the form of higher input costs. Rising oil prices will also contribute to high global inflation. The extreme degree of uncertainty about the oil outlook for 2022 necessitates flexibility in business planning.


The war in Ukraine has caused a major disruption to global oil supply. Retaliatory sanctions on Russia and widespread self-sanctioning on the part of traders and oil majors have taken a significant amount of oil supply offline. As a result of the disruption, the price of a barrel of Brent crude surged above US$ 100/barrel after the invasion and reached a high of US$ 139/barrel on March 7. Since then, prices have eased somewhat on optimism about a ceasefire in the war and on an expected drop in demand due to virus-related lockdowns in China.

Our View

Our oil price forecasts reflect several assumptions about the supply and demand outlook in a highly uncertain environment. It also weighs the various upside and downside price risks. However, the outlook depends crucially on political decisions by major leaders in the next several weeks, which translates to high price volatility and high forecast uncertainty.

On the supply side, our core assumption is that Russian oil production will begin to fall dramatically this month, by about 3 million barrels per day (bpd). Even without additional energy sanctions, the weight of the existing sanctions and the likelihood that a majority will remain in place for at least the rest of the year will make it extremely difficult for Russia’s oil sector to maintain normal operations. A 3 million bpd drop in oil production constitutes a major hit to global oil supply—particularly given the likelihood that this decline will be semi-permanent. That drop will exert major upward pressure on oil prices beginning in Q2. However, we do expect some supply response. On March 31, the US indicated its intention to release 180 million bpd of crude from its strategic petroleum reserve over the next several months, an amount which will likely be accompanied by releases from other countries’ reserves. We assume the short-term supply response from OPEC and the US will be more limited, but together the increase from those sources may amount to an additional 1 million bpd. We also assume that a renewal of the Iran nuclear deal will bring a moderate amount of supply online toward the end of the year.

On the demand side, we assume steady growth in global oil demand over the course of the year due to the continued unwinding of global travel restrictions. However, China’s continued adherence to its zero-COVID strategy and the likelihood of prolonged, rolling lockdowns across China throughout the year will take a bite out of global oil demand and significantly curb further price increases. As a result, Brent crude prices are likely to average around US$ 111 in 2022 but with high day-to-day volatility and price variation across the year.

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