Bank of America (BofA) analysts have highlighted recent developments in the energy sector, noting that unexpected U.S. sanctions on Russian energy and cold winter weather have pushed Brent crude prices back above $80 per barrel.
These factors, along with disciplined production from OPEC+, have contributed to a sharp increase in front-to-third month Brent crude timespreads, now at $2.20 per barrel. Despite this, BofA warns of underlying weak fundamentals and potential headwinds from tariffs.
In the wake of the Russian invasion of Ukraine, global energy prices have experienced fluctuations. Brent crude oil, which averaged $99 per barrel in 2022 and $82 per barrel in 2023, is projected to average around $80 per barrel in 2024, with a dip to multi-year lows of $69 per barrel in the second half of 2024.
Recent sanctions and weather conditions have temporarily reversed the downward trend in prices, while petroleum inventories have shown a seasonal decline. BofA cautioned at the end of last year about the significant upside risk to energy markets from policy actions.
The firm predicts that global trade will remain subdued, with further softening expected as manufacturing Purchasing Managers' Indexes (PMIs) may decline. The United States' plans to increase tariffs on China and other countries could exacerbate this trend in the first half of 2025. Although China's refining sector is increasing petrochemical inputs and air traffic growth supports distillate demand, structural changes like fuel substitution could dampen diesel demand.
The analysts also underscored that geopolitical events, including sanctions, tariffs, and international relations, could profoundly influence oil supply and demand balances over the next 18 months. BofA's baseline forecast suggests that gasoil-Brent cracks will average around $14 per barrel in the second quarter of 2025.
However, they caution that the recent sanctions against Russia and potential policy changes regarding Venezuela and Iran by the incoming Trump administration could significantly alter market projections and tighten global energy markets in the near term.
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