Some forecast Brent better than others
While the EIA trimmed its Brent spot price forecast for 2023 to $83/bbl this week, other forecasters expect Brent to average $90/bbl this year. We assess how accurate predictions such as these have been in a highly volatile market over the past two years.
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Predicting the price movement of a commodity like Brent, that is such at the mercy of geopolitical swings and economic peaks and troughs, is certainly a herculean task. Yet investment banks and oil market watchers all make a stab at it regularly.
The US Energy Information Administration (EIA) may have revised down its Brent price forecast to $83/bbl for this year. Other oil analysts expect it to average above $90/bbl, like those at the World Bank which expect a $92/bbl average this year and $80/bbl in 2024.
Morgan Stanley predicts a higher $110/bbl by mid-2023, JPMorgan an average of $90/bbl across the year, while Goldman Sachs expects a higher average of $98/bbl. However, the chances of any of these forecasters to get it right seem slim if we go by their track records.
EIA misses quarters but gets year right
The EIA forecast a Brent average as low as $78.63/bbl in the first quarter of 2022. That was far off the mark as it ended up averaging $101.17/bbl. Virtually all forecasters got this quarter very wrong, and they can hardly be blamed as it would have been near impossible to predict that Vladimiar Putin would actually go through with his invasion of Ukraine at the time of their modelling.
Brent then settled at an average of $113.84/bbl in the second quarter of 2022, versus yet another lower EIA forecast of $107.65/bbl.
The EIA further forecast Brent to average $104.27/bbl in the third quarter and $92.98/bbl in the fourth quarter, but this time Brent ended up averaging lower at $100.53/bbl and $88.44/bbl, respectively.
The EIA got the Brent price for the whole of 2022 roughly on point, having forecast it to average $101.48/bbl - just $0.56/bbl above what it actually did average.
Investment bankers mostly misfire
The October 2021 report from Goldman Sachs cited upside risks to its year-end forecast of $90/bbl, while Brent averaged a much lower $71/bbl in the last two months of the year, and even dipped below $70/bbl on 2 December 2021.
Another investment bank that completely missed the mark was JPMorgan. It wrote in its May 2020 report titled “Have Oil Prices Reached an Inflection Point?” that “the damage to global oil markets will persist into next year, and Brent is forecast to average $37/bbl for 2021.” Coincidentally, that was also the last month that Brent was in its $30s/bbl, and its price has gradually recovered since then.
In December of 2021, JPMorgan predicted that Brent would shoot up above $125/bbl due to capacity-led shortfalls in OPEC+ production, but the bank later changed its price prediction to $104/bbl for the year on average. It also wrote in a note dated 1 July 2022 that Brent could reach a "stratospheric" $380/bbl if Russia cut oil production by 5 million b/d in retaliation for a G7 price cap of around $50-60/bbl. As of yet, Russia has not cut its output by anywhere near that level, even after the G7 price cap $60/bbl has come into effect.
There have been both hits and misses for US-based investment bank Morgan Stanley, with a more misses than hits. It May 2020, it raised its price forecast for the pandemic-year 2020 from $35/bbl to $40/bbl, expecting a rebound in global oil demand in the fourth quarter. Brent spot averaged $41.69/bbl across 2020, keeping close to the prediction.
In 2022 however, a tightening of supply led Morgan Stanley to revise its price forecasts for the year up to as much as $130/bbl in the third quarter. But Brent fell far short of that and averaged "only" $100.53/bbl.
Bullseye for the World Bank
The World Bank nailed its prediction that “Brent is projected to average $100/bbl in 2022, a 42% increase from 2021 and its highest level since 2013” in its April 2022 report. It kept this forecast unchanged for the remainder of the year. It also hit the nail on the head in 2021, predicting then that Brent would average $70/bbl.
By Konica Bhatt
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