Bank of America revises near-term oil price forecasts higher

"We contend the outcome is an industry institutionally discouraged from investment, where OPEC+ now controls the market. Perhaps the question for investors can be distilled to one simple idea: what oil price does Saudi plus support in a market where it is not challenged for market share?," they said.

"If this is anchored to the required revenues of the OPEC+ states we contend that the evidence of the past year puts $60-$80 as a reasonable starting point."

The analysts now see Brent crude oil hitting $85.0 and $75.0 in 2022 and 2023, up from $74.75 and $65.0, respectively.

They also revised their price forecasts for 2023 and 2024 by $10.0 and $7.50 a barrel to $75.0 and $67.50, whereas that for 2025 was unchanged at $60.0.

Yet US oils were discounting a price of West Texas Intermediate oil of $50 a barrel, they said.

On their new estimates, some names were now offering free cash yields in excess of 30% with upside across the space of approximately 20%.

Among the factors which they expected would support the oil price, but which had yet to play out, were the recovery in oil demand post Covid and the return of OPEC+'s spare capacity to eliminate the overhang that can threaten price volatility at the front end of the oil price curve.

"That our commodity team has introduced the idea that oil could trade in a $70-$100 range for an extended period means that as distortions from OPEC+ intervention unwind, we need to consider the risk that inevitable volatility that warrants n/term caution is displaced by upward revisions to the oil price outlook, and by inference what the market is prepared to discount."

BoA kept its price objectives for the stocks under its coverage unchanged with the long-term price of oil anchored at their base case of $60.