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The Institute of International Finance (IIF) expects Brent oil prices to pick up to $47/barrel in 2021, still significantly lower than in 2019 ($64/barrel).
Higher global oil inventory levels and surplus crude oil production capacity in key oil producers will limit significant upward pressure on oil prices in 2021, the global association of the financial industry said in a note.
The OPEC+ group (includes the cartel’s 13 members, Russia, and 9 other allied oil exporters) has recently agreed to raise output only by 0.5mbd in January, down from the previous commitment of 2mbd agreed in April. Output levels thereafter will be decided at monthly ministerial meetings. The recent recovery in prices continues to be driven by OPEC+ production cuts, partial recovery in global demand, further depreciation of the US dollar, and news about the possibility of COVID-19 vaccines.
According to IIF, as of early December, oil futures contracts indicate that Brent prices will average $48/barrel in 2021 and remain the same through 2023. Uncertainty, however, remains high as responses to COVID-19 continue to evolve.
Garbis Iradian, MENA Chief Economist at IIF, said: "Beyond the near term, oil prices are likely to remain around $50/barrel, as the fossil-fuel industry will face increased competition from renewable energy sources and electric vehicles and increased global climate-change regulation. Moreover, a possible return of Iranian crude oil exports in 2021H2 or in early 2022 would weigh on an already saturated oil market and put further downward pressure on oil prices."
Upside risks to prices include faster containment of the pandemic and further cuts in oil upstream investments in the context of clean energy. Downside risks include: (i) renewed slowdown in global economic activity; (ii) higher oil production non-OPEC countries; (iii) breakdown of the OPEC+ agreement; and (iv) larger increase in Iranian crude oil exports if a Biden administration succeeds in renegotiating the nuclear deal before end-2021, the report noted.
(Writing by Seban Scaria; editing by Daniel Luiz)
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