JP Morgan sees OPEC spare capacity falling through 2022

The OPEC logo is pictured on the wall of the new OPEC headquarters in Vienna
The logo of the Organization of the Petroleum Exporting Countries (OPEC) is pictured on the wall of the new OPEC headquarters in Vienna March 16, 2010. REUTERS/Heinz-Peter Bader

Jan 12 (Reuters) - JP Morgan on Wednesday said it expects Organization of Petroleum Exporting Countries' spare capacity to fall through 2022, driving a higher risk premium to oil prices.

JPM forecasts oil prices to rise as high as $125 a barrel this year and $150 a barrel in 2023. "We see growing market recognition of global underinvestment in supply," the bank said.

Oil prices hit two-month highs on Wednesday on tight supply as crude inventories in the United States, the world's top consumer, fell to their lowest since 2018. A weaker dollar and easing concerns about the Omicron coronavirus variant were also factors.

Assuming production at prevailing quotas, OPEC spare capacity will fall to 4% of total production capacity by fourth quarter 2022, from 13% in the third quarter 2021, the U.S. investment bank said in a note.

JPM said this comes at a critical point as other global producers falter. The combination of underinvestment within OPEC+ nations and post-pandemic rising oil demand could lead to a potential energy crisis.

Reporting by Ashitha Shivaprasad in Bengaluru; Editing by Cynthia Osterman

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