Oil may cross $50 in 2021
dubai — The decline in oil prices on Friday after a consistent rally is not necessarily the result of a market event, but rather a correction of the consecutive boosts that oil has seen over the last days, oil market analysts said while predicting a potential for higher prices above $40 per barrel later this year.
Oil has risen in recent days on as activity starts to resume, but prices dropped after China, the world’s largest crude importer, said on Friday it would not publish an annual growth target for the first time.
“Coronavirus has nullified a decade of global oil demand growth and the recovery will be slow,” said Stephen Brennock of broker PVM.
Brent crude futures fell $1.53, or 4.2 per cent, to $34.53 a barrel. US West Texas Intermediate (WTI) crude futures fell $1.20, or 3.5 per cent, to $32.72 a barrel.
Oil prices will divert a little bit from this range depending on the day and on bullish or bearish indications
Paola Rodriguez Masiu,
Senior oil markets analyst at Rystad Energy
The sharp market rebalancing continues to garner momentum, driven by both supply and demand improvements
Ehsan Koman,
Head of Mena research and strategy at MUFG
“As we have said, we see oil stabilising now between $30 and $35 per barrel for a while, with a potential for higher prices in the 40s only later in the year when and if demand strengthens and approaches pre-Covid-19 levels,” said Paola Rodriguez Masiu, senior oil markets analyst at Rystad Energy.
“Prices will divert a little bit from this range depending on the day and on bullish or bearish indications, but that’s the level that they will move around for a while,” said Masiu.
Ehsan Koman, head of Mena research and strategy at MUFG, said the sharp oil market rebalancing continues to garner momentum, driven by both supply and demand improvements.
“The sheer velocity of supply curbs — voluntary [Opec+] and involuntary [primarily forced production shut-ins in the US and Canada], in conjunction with the ongoing reopening of economies across the world — is driving oil markets to become instantaneously balanced with the equilibrium of supply equating demand by late May-early June [the inflection point], with a deficit by mid-June, in our view.”
“The further reopening of economies across the world in the weeks ahead, alongside higher decline rates, lost shut-in capacity and a materially higher cost of capital for oil markets, will set the stage for a global oil market in deficit by mid-June, ultimately leading to higher oil prices,” said Koman.
“From this, the structural outcome of the ongoing rebalancing leads our models to forecast Brent ending Q3 and Q4 2020 at $36 and $46 a barrel, respectively — with clear upside risks — and rising to average $55 in 2021.”
Oil market analysts believe that the issue of a second wave of infections certainly casts a shadow over the immediate—and the long term—future of oil, but there is also the issue of oil storage.
“Sure, prices have been improving on those early signs of improving demand, but they have been mainly improving because of the lower production reports and general optimism that things will eventually get better. Until they do, however, there are still hundreds of millions of crude oil barrels sitting in storage,” said an analyst at Oilprice.com.