As oil prices reach close to US$130 ($176.63) per barrel as at March 9, DBS Group Research analysts Suvro Sarkar, Ho Pei Hwa, Duladeth Bik and William Simadiputra are raising their base case forecasts for average Brent crude oil prices this year.
From an initial estimate of US$77 to US$82 per barrel, the DBS analysts now figure that Brent crude, the benchmark, will now hit an average of US$95 to US$100 for the whole of 2022, as hostilities in Ukraine drag on with repercussions that stood more severe than expected.
“Spikes even up to US$150 per barrel cannot be ruled out,” the analysts say.
“While oil is officially out of the sanction’s purview for now, many refiners have adopted self-imposed embargoes of Russian crude cargoes. Thus, at least between 1.5- 2.0 million barrels per day (mmbpd) of Russian oil could be out of the market for a few months. This is our base case scenario for now,” they add.
In a bear case scenario, where direct sanctions on Russian crude are imposed, as well as a lengthy conflict dragging on, the analysts have estimated an average Brent crude oil forecast of US$110 to US$115 per barrel in 2022, with peaks of around US$180 to US$200 per barrel.
The way they see it, a direct ban on Russian oil imports could impact three to four mmbpd of global oil supplies, which would be difficult to offset over any “feasible period of time” regardless of any surplus capacity from OPEC or a deal from Iran.
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On March 9, US president Joe Biden announced an immediate ban on Russian oil and other energy imports.
"That means Russian oil will no longer be acceptable in US ports and the American people will deal another powerful blow to (Russian President Vladimir) Putin's war machine,” said Biden to reporters at the White House.
The way the analysts see it, the upstream and integrated oil names under their coverage are already delivering superior profits in FY2021 compared to their pre-Covid-19 levels.
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Counters under their coverage include China National Offshore Oil Corp (CNOOC), Sinopec and PetroChina.
To them, profits are only going to increase on the back of the rise in oil prices.
Free cash flows have almost doubled from 2019 levels, as capex trends have remained subdued, they add.
“Despite the favourable macro backdrop and potential for superior cash flows, earnings, and dividends, stock prices are still not far from pre-Covid levels, especially CNOOC, and have not fairly reflected the rebound, in our opinion,” they write.
“We are factoring in conservative oil price assumptions in our forecasts, and at US$100/bbl average for 2022, we estimate there is a 30-70% upside potential for FY2022 earnings and dividends for our coverage,” they add.
Photo: Bloomberg
