The upward trend in oil prices are expected to strengthen in coming weeks as stronger demand outlook and signs of economic recovery in China and the United States offset rising Covid-19 infections in some other major economies, according to latest reports.
Energy experts and analysts see a $60-per-barrel price as the new normal and said crude prices may shoot as high as $80 during the third quarter of 2021 on a near-term demand recovery, supply discipline and higher GDP growth for the global economy.
Brent crude oil for June delivery closed down 17¢ to $66.77 a barrel while benchmark US crude oil for May delivery fell 33¢ to $63.13 a barrel on Friday. Brent oil registered 6.2 per cent gains last week after rising in the past four sessions.
“We are net bullish on the week ahead, with attention turning to the data front and on signals of whether higher than expected physical demand stemming from reopenings continues to meet a constrained supply response,” said Ehsan Khoman, director and head of Emerging Markets Research for Europe, Middle East and Africa at MUFG Bank.
Crude demand picks up
The International Energy Agency (IEA) and the Organisation of the Petroleum Exporting Countries (Opec) revised their global oil demand growth forecasts for 2021 higher last week to 5.7 million bpd and 5.95 million bpd, respectively. Prices also found support from a big fall in US inventories at 5.9 million barrels.
Energy experts and analysts said the upward revision in oil demand by the IEA and Opec marks a change of tone from previous months, in which both groups cut demand forecasts because of continued lockdowns. They said a further recovery could bolster the case for Opec and its allies to unwind more of last year’s record oil output cuts.
“For 2021 as a whole, we continue to forecast Brent averaging $68 per barrel and WTI averaging $65. However, Brent and WTI are expected to sustain average $58 and $55 a barrel in 2022,” Khoman said.
“Lower prices next year will be driven by a lower carbon future accelerating the decline in oil intensity of GDP growth and an ongoing falling cost structure of the oil industry. Succinctly put, we are cyclically positive and expect an ‘overshoot’ in second quarter — Brent at $77 and WTI at $74 per barrel,” he said.
Opec stabilises market
Oil has recovered from pandemic-induced lows last year, helped by record cuts to oil output by Opec and its allies.
Some of the production cuts will be eased from May and the group meets on April 28 to consider further tweaks to the supply pact.
“Supply discipline and rebounding economies are set to give oil a chance to break out of the recent range,” Goldman Sachs analysts said in a report.
“We remain positive on Brent oil forecasting $80 per barrel in third quarter of 2021 on a near-term demand recovery and supply discipline,” they said.
According to another research report by ICICI Securities, oil prices are expected to be in the range of $60 a barrel over the long-term period as Opec+’s decision to cap supply until demand recovers and the pandemic continuing to keep check on consumption.
“Opec+ capping supply until demand recovers is estimated to ensure supply deficit of 1.3 million barrels of oil per day in calendar year 2021 and keep Brent above $60 per barrel,” the Mumbai-based brokerage said.
“While Opec+ capping supply should keep Brent above $ 60 for a barrel, delay in demand recovery and US lifting sanctions on Iran exports would cap further rise. We estimate long-term Brent at $60,” it added.
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