Bank of America Forecasts Oil Prices

Bank of America (BofA) is forecasting more downside risk than upside for oil prices, predicting Brent crude will settle around $70 per barrel.

In a note released on Thursday, the bank’s commodities team expressed a cautious outlook on oil influenced by various factors, such as OPEC’s supply dynamics and growth in non-OPEC production.

> "Our base case is $70/bbl (which we think is priced in), but we see more downside oil price risk than upside. OPEC spare capacity could easily cover most scenarios of barrels threatened by wider Middle East conflict," strategists noted.

A significant factor for this risk involves OPEC potentially adding 2 million barrels per day to the market, in addition to a projected non-OPEC supply growth of 1.6 million barrels per day. BofA estimates global oil demand will grow by only 1 million barrels per day next year.

> "Our call on OPEC is a very slow return of the ~2mbd – suggesting ~6-7% of demand as OPEC spare capacity, according to energy data firm Woodmac," the note stated.

This portion has been higher historically, but usually only during short, unexpected demand downturns, rather than becoming a new norm. This indicates limited upside to the predicted $70 Brent price and possible downside should OPEC regain share.

In the current market, BofA strategists prefer gas-linked stocks, especially midstream companies. They highlighted an oversupply of gas currently but noted improving medium-term prospects, with positive developments anticipated in 2025 due to data center growth and increasing liquefied natural gas (LNG) demand.

The team believes that the market is underestimating the free cash flow (FCF) potential of their favored companies, with some expected to increase payouts by 50% by 2027.

Cheniere Energy (NYSE:LNG) remains BofA’s top Buy-rated pick, with predictions of FCF exceeding $20 per share in three years.

Other energy names with a Buy rating include Kinder Morgan (NYSE:KMI), Williams Companies (NYSE:WMB), and Chevron (NYSE:CVX).