Brent Oil to hover around $80 as demand returns to pre-COVID levels by mid-2022 – SocGen

For Brent, Société Générale strategists’ base case sees the price averaging $80/bbl by 2Q22. In the upside scenario, the gradual increase in demand should reach 2mbd above our base case by mid-2022, with prices jumping to $90/bbl. In the downside scenario, they expect 1.5mbd to be removed from demand, with prices dropping toward $70/bbl.

Base case for 2Q22 (50% probability)

“Oil at $80/bbl. Only a few restrictions are implemented and global oil demand returns to close to pre-COVID levels by mid-2022. The demand outlook seems bullish and the US SPR release is only a $1/bbl drop in the ocean. However, we expect OPEC+ to manage supply efficiently in 1H22 despite Iran supply not returning before mid-2022. This would keep the market in a slight 1mbd surplus in 1H22 and the OECD industry stock at 3 days of global consumption coverage below its 5-year average. Once uncertainties brought by Omicron dissipate, the relative market tightness and low inventories should keep prices at around $80/bbl in 1H22.”

Upside scenario for 2Q22 (25% probability)

“Oil at $90/bbl. The new restrictions to contain Omicron are swiftly lifted and the longer-standing restrictions are also lifted albeit gradually from the beginning of next year. We expect this scenario to be more beneficial for oil consumption than GDP growth as mobility increases and consumption becomes more focused on services. The gradual increase in demand should reach 2mbd above our base case by mid-2022, with prices jumping $15/bbl in the next six months.”

Downside scenario for 2Q22 (25% probability)

“Oil at $70/bbl. Current restrictions are significantly strengthened to avoid new variants from spreading. The impact on oil consumption is larger than the impact on GDP. However, we expect a much lower impact than from the first batch of restrictions, economies having learned to adapt to such measures. We expect 1.5mbd to be removed from demand; this is 10x lower than the demand destruction at the peak of the first batch of restrictions and would point to prices dropping toward $70/bbl.”