The World Bank, in its latest Commodity Markets Outlook forecast, has projected average crude oil prices at $74/barrel (bbl) of crude oil in 2022.
The projection is $4/bbl above the 2021 average of $70/bbl, as oil demand strengthens and reaches pre-pandemic levels102, while natural gas and coal prices are expected to fall in 2022 as production constraints ease.
The report also showed that oil prices averaged $72/bbl in the third quarter (Q3’2021), an increase of seven percent on Q2, amid significantly fluctuating prices.
The report said: “Oil prices are forecast to average $74/bbl in 2022, up from a projected $70/bbl in 2021, before dropping to $65/bbl in 2023. Oil demand is expected to continue its recovery and reach its pre-pandemic level by the second half of 2022.
“Oil production is expected to increase as supply outages are resolved; as production responds to higher demand, particularly shale production in the United States; and as OPEC and its partners unwind the rest of their production cuts. Investment shortfalls in new production, including U.S. shale, pose an upside risk.”
It noted that investment in new oil production fell sharply in 2020 and has been slower to pick up than after the previous price collapses.
Oil production is expected to increase as supply outages are resolved; as production responds to higher demand, particularly shale production in the United States; and as OPEC and its partners unwind the rest of their production cuts.
The report added that the substitution of crude oil for coal and natural gas in heating and electricity production poses another upside risk, while the outbreak of new variants of COVID-19 remain a downside risk to demand.
Other risks include adverse weather, further supply constraints, and new outbreaks of COVID-19.
Oil prices had risen rapidly in recent months, with Brent reaching a seven-year high of nearly $85/bbl by mid-October as a result of production disruptions in the United States caused by Hurricane Ida, and an announcement by OPEC+ to maintain previously announced production increases.
Also, natural gas prices had increased by 69% in Q3, while coal prices increased by 44% with some price benchmarks for both commodities reaching all-time highs.
The World Bank report further indicated that the fluctuations in commodity prices such as natural gas, fossil fuel and a host of others this year climaxed some of the challenges in transitioning to a zero-carbon economy.
It noted that cities have a key role to play, as they account for around two-thirds of energy demand and greenhouse gas emissions.