Increased U.S. shale production, a stronger dollar and a price war are among the risks that could push down the price of oil, according to the Bank of America Merrill Lynch.
The investment bank lowered its price forecast for Brent crude from an average of $55-$75 per barrel through 2022 down to an average of $50-$70 in its latest global energy paper.
While oil prices have recently recovered thanks to increased consumption and about 90 percent of the OPEC oil-producing cartel sticking to agreed production cuts, the team at BofA Merrill Lynch Global Research warned that U.S. shale is set to rock the market once again.
"Oil prices have recovered mostly thanks to OPEC and key non-OPEC players putting an end to a two-year price war and agreeing to cut production by 1.8 million barrels per day (mb/d). So OPEC spare capacity has expanded," the researchers said in the latest global energy paper.
"Moreover, U.S. shale production is now poised to recover on improved efficiencies following the rebound in longer-dated WTI prices above $50 per barrel."
The research team predicted that oil demand would grow slowly for the next few years, expanding by 1.1 mb/d per year through to 2022, driven by emerging markets. However, carpooling initiatives, autonomous driving and electric vehicles in develop markets could drag on demand.
Meanwhile, if oil prices rise above $55 a barrel, more U.S shale production will come online and take market share, the note predicted.
"We believe U.S. shale oil producers will come out ahead and deliver outsized market share gains by 2022. Assuming a gradual recovery in oil prices into a long-term average of $50 to $70 a barrel, we project annual US shale oil growth of 700,000 b/d in 2017-22."
However the research team did note some potential upside risks for oil: Faster-than-expected oil demand growth, geopolitical risks and building inflation would support oil prices.
Oil prices are trading lower today. Brent crude is down 34 cents to $56.32 a barrel, while WTI is down 34 cents to $53.99 per barrel.
Oil prices have been trading in a narrow band since for the last few months, swinging higher and lower by just a few percentage points. Since the beginning of the year, Brent is down 0.79 percent, while WTI is up 0.2 percent.