Rising prices in energy markets in 2022, driven by a stronger ESG agenda, will continue. The trend toward decarbonization while increasing energy demand will only accelerate the rate of "green" inflation and lead to a further increase in oil prices above $100 per barrel as early as the second half of this year, Saxo Bank said in a forecast for 2022, provided to TASS.
The recovery of the global economy from the pandemic in 2021 has led to record oil and gas prices. "Years of abundant supply with stable prices led to less investment in new production, and once the post-pandemic growth surge hit, it was hard for supply to keep up," explains Ole Hansen, head of commodity market strategies at Saxo Bank.
The grounds for greenback inflation will remain in place this year, he warns. "Rising demand and commodity prices needed to support the green transition will be met by inelastic supply, driven in part by sets of principles such as the ESG that prohibit some investors and banks from supporting mining and drilling projects," the analyst says.
"The outlook for 2022 points to continued tensions and, consequently, rising prices," Hansen writes. For example, he warns that in the European gas market, the projected price structure will cause continued problems that will affect consumers and industries across the continent. And this despite the fact that this winter the risk of European power outages was more or less averted due to mild weather and large reserves of LNG. The expert points out that TTF gas futures with delivery in February 2023 are trading at just 10% below the current price - more than four times the long-term average.
Meanwhile, the oil market will be even tighter than in 2021, says Hansen. The reason for this, again, is that not all oil producers have the opportunity to increase oil production, including those from the OPEC+ agreement. "The oil market is likely to face years of underinvestment, with big oil companies losing interest in big projects, partly because of uncertain long-term demand prospects, but also increasingly because of credit constraints imposed on banks and investors due to the focus on ESG and green transformation," the expert notes.
Despite predictions that the first few months of 2022 could show a supply surplus in the oil market, Hansen points to the depleting global production capacity factor. "We see the price of Brent crude likely to reach $90, and potentially climb above $100 in the second half of the year," he believes.