‘Global oil prices to recover in 2021’

Moody’s Investors Service expects global oil prices to recover in 2021 as the sector rebalances for the remainder of the year due to the impact of the coronavirus disease 2019 (COVID-19) pandemic.

In its latest report, Moody’s said it has reduced its mediumterm oil price assumption to $45-$65 per barrel from its previous projection of $50-$70 per barrel as it expects an uneven and prolonged rebalancing of the oil market.

In particular, it expects West Texas Intermediate (WTI)—the North American benchmark crude—to average $30 per barrel for 2020 and $40 per barrel in 2021, and Brent—the international benchmark—to settle at $35 per barrel for 2020 and $45 per barrel for 2021.

The adjustment, however, does not signal a step change in industry fundamentals.

“Our medium-term price range reflects our assessment of equilibrium prices required to support replacement of depleting reserves,” Moody’s vice president and senior credit officer Elena Nadtotchi said in the report.

Moody’s said the oil price recovery would depend on how quickly demand recovers, while high crude and fuel inventories delay a recovery until 2021.

“A price recovery toward our medium-term oil price range will depend on the pace of recovery in oil demand and on sustained discipline in the supply response as oil prices start to recover. Demand will hinge on the overall economic recovery that we expect in 2021 and on the momentum in transportation in particular,” Nadtotchi said.

Moody’s said the US — which is the world’s largest oil market according to the US Energy Information Administration (EIA) — already showed some signs of rebounding gasoline demand after travel restrictions caused a dramatic drop in consumption in the second quarter.