Pent-up travel demand will contribute to higher oil prices in Q3

Our Brent crude annual average oil price forecast is US$ 109 for 2022 and US$ 95 for 2023

Declining Russian oil production, a limited supply response from the US and OPEC, and the continued threat of further oil market dislocation will ensure oil prices stay high through next year despite some downward pressure stemming from periodic lockdowns in China and a likely global recession. Overall, firms should factor in a high oil price environment over the next 18 months—particularly for consumers of refined petroleum products. Relatively high prices will also be a boon for oil producers and exporters, although crude prices are likely to ease from current levels beginning in Q4 2022.


The price of Brent and West Texas Intermediate (WTI) crude oil surged after Russia’s invasion of Ukraine and has remained well above pre-war levels ever since, fluctuating primarily in the US$ 105–120 range. Currently, Brent prices are sitting at US$ 113. Despite extreme supply pressures stemming from the war, including the EU’s imposition of an oil embargo, prices have failed to break above US$ 150, as many market analysts feared at the start of the Ukraine war. Instead, oil prices have been kept in check primarily by China’s lockdowns, which have weakened oil demand.

Our View

Our annual average Brent crude oil price forecast is US$ 109 for 2022 (slightly below our previous forecast of US$ 111) and US$ 95 for 2023. These forecasts reflect several assumptions about the supply and demand outlook in an uncertain environment.

Russia’s oil production: Russian oil production will continue to face downward pressure, as sanctions disrupt Russian energy sector operations, financing, and exports. We expect Russian crude oil production to fall from 11.3 million bpd in Q1 2022 to 9.3 million bpd in Q4 2023. June production was 10.7 million bpd, implying a further 1.4 million fall in global supply in the next 18 months, which will exert upward pressure on oil prices.

Oil market dislocation: Although significant supply disruption has already taken place, the continuation of the war in Ukraine poses a persistent threat of further disruption. The next phase of sanctions may include the imposition of a price cap on Russian oil by the G7, which could prompt Russia to retaliate by dropping production or exports in order to purposely limit global supply. Our forecasts account for this possibility but assume that any retaliation by Russia would not significantly run ahead of the expected drop in production under existing sanctions, as Russia remains dependent on oil revenues and faces technical barriers to halting production.

China’s lockdowns: We expect China to continue its Zero-COVID strategy through at least mid-2023, which will exert significant downward pressure on oil prices, as China accounts for 13% of global oil consumption. However, “dynamic” lockdowns mean that oil prices will remain volatile—dropping when major cities go into lockdown and rising again when they reopen. The timing and degree of these fluctuations are inherently unpredictable.

OPEC & US production: OPEC’s priority remains to “balance” the market at moderately high prices (similar to their recent range). OPEC’s current spare capacity is limited but may grow in the next 18 months. US production continues to recover but will remain below pre-pandemic production until early-mid 2023.

Pent-up travel demand: The global travel recovery accelerated in Q2 and still has room to run. Pent-up demand for travel, particularly for flights and international travel, will raise jet fuel demand and put upward pressure on oil prices during the peak northern hemisphere tourism season in Q3. This issue is a major factor behind our expectations for higher oil prices in the near term.

Global recession: Recent events make it increasingly likely the global economy will experience a recession in the next 18 months; we consider this scenario slightly more likely than not. A global recession, or even a significant global growth slowdown in a high-inflation environment, will lower oil consumption and exert downward pressure on oil prices.

Tight refining capacity: Although not reflected in our price forecasts for crude oil, tight global refining capacity—stemming from both the war in Ukraine and a legacy of underinvestment—will ensure that prices for distillates and refined petroleum products remain high and sell at a premium to crude over the next 18 months.

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