A clutch of investment banks recently raised their forecasts for oil realizations on the back of heightened geopolitical risks and the delayed return of Iranian crude to the market. Considering the commodity’s tighter supplies and strong consumption, Citibank and Barclays lifted their oil price projections for 2022 and 2023.
As it is, the price of Brent crude — the global benchmark — and the U.S. WTI, have both risen more than 50% year to date and are currently trading close to $120 per barrel. Prices have been driven up by curbs on Russia, as well by robust consumption thanks to the reopening of economies and a rebound in activity.
What the Banks Said
For the second quarter of this year, Citibank now sees Brent Crude averaging $113 per barrel, up from a previous projection of $99. The bank lifted its price target in the third and fourth quarters to $99 and $85 per barrel, repectively, from $87 and $73 before. The U.S. bank said in a note that it expects oil price to average $75 next year, indicating a $16 increase from the earlier view.
On the supply side, Citi does not foresee a waiver of Iranian sanctions before the first quarter of 2023 that will perk up daily crude barrels by 500,000 in the first half and 1.3 million over the second half. The timeline for additional oil supplies from Iran has been pushed back from the bank’s earlier assumption of mid-2022. Citi analysts added that flows from Russia could fall between 1 million and 1.5 million barrels per day by the end of this year.
British bank Barclays struck a similar tone as it projected production from Moscow to drop by 1.5 million barrels per day during the same timeframe, as the country battles global sanctions in the wake of its Ukraine invasion.
The bank expects Brent to average around $111 per barrel in 2022 and 2023. Barclays’ previous forecast was an average of $100 a barrel this year and $88 for the next. Barclays also added that WTI is likely to average $108 for both years.
Oil briefly crossed $120 yesterday, primarily reflecting the abovementioned factors, plus Saudi Arabia’s increased pricing for oil shipments. Higher rates from the world’s biggest crude exporter reflects the robust health in Oil/Energy markets.
The space continues to enjoy support from geopolitical uncertainty amid Russia’s military operations in Ukraine. In March, crude prices surged to multi-year highs of $130 on concerns about supplies from Russia, which is one of the world’s largest producers of the commodity. The Biden administration’s ban on the import of Russian crude and energy products contributed to oil’s rapid price increase. Agreed, crude has pulled back from those lofty levels, but with the conflict showing no sign of a quick resolution and the European Union finally following the United States in blocking imports of Russian energy — even at the detriment of their economies — the oil bulls are getting a fresh impetus.
Even the fundamentals point to a tightening of the market. Per the latest government report, U.S. commercial stockpiles have been down more than 13% in a year, prompted by a demand spike.
As a matter of fact, the Energy Select Sector SPDR — an assortment of the largest U.S. companies thronging the space — has risen 61.1% year to date against a 13.5% loss for the broader S&P 500 benchmark.
Consequently, the top three gainers of the S&P 500 this year are all energy-related names: Occidental Petroleum (OXY – Free Report) , Coterra Energy (CTRA – Free Report) and Marathon Oil (MRO – Free Report) .
Occidental Petroleum: OXY is the top-performing S&P 500 stock in 2022, with a gain of 140.1%. Occidental Petroleum’s expected EPS growth rate for three to five years is currently 32.3%, which compares favorably with the industry’s growth rate of 21.9%.
OXY has a projected earnings growth rate of 296.1% for this year. The Zacks Consensus Estimate for Occidental Petroleum’s 2022 earnings has been revised 77.8% upward over the past 60 days.
Corterra Energy: This Zacks Rank of #2 (Buy) stock was the second-best performer in the S&P 500 Index, with shares having appreciated 95.3% in 2022. CTRA has a projected earnings growth rate of 85.3% for this year.
The Zacks Consensus Estimate for Corterra Energy’s 2022 earnings has been revised 39.5% upward over the past 60 days. CTRA’s expected EPS growth rate for three to five years is currently 55%, which compares favorably with the industry’s growth rate of 26.8%.
Marathon Oil: Marathon stock has jumped 91.3% year to date. MRO beat the Zacks Consensus Estimate for earnings in each of the trailing four quarters, the average being 23%.
Marathon is valued at around $22.4 billion. MRO has a projected earnings growth rate of 214.7% for this year.