Oil seen at pre-virus prices by summer
Prediction comes amid crude reaching an eight-month high, hope for a vaccine
The price of U.S. oil jumped to an eight-month high Wednesday amid optimism about a coronavirus vaccine and a belief that OPEC and its allies will extend production cuts next week.
The enthusiasm has led to a prediction that oil prices could approach pre-pandemic levels by summer and boost Houston’s struggling oil and gas industry, which has shed tens of thousands of jobs during the downturn.
West Texas Intermediate, the U.S. benchmark, rose 3.6 percent Wednesday to settle at $45.62 a barrel, extending its recent rally and lifting hopes for a quicker recovery from the worst oil bust in decades. If the Organization of the Petroleum Exporting Countries and its allies, which meet Tuesday, extend by three months the production cuts of 7.7 million barrels per day, crude prices are likely to rise, analysts said.
“Oil demand will still need crutches going into 202,1 and the market needs to see decisiveness from OPEC+ in the coming meeting,” said Bjornar Tonhaugen, Rystad Energy’s head of oil markets. “An extension of the current production levels is needed, but although it is not yet official, it is widely expected. ... This puts the market at risk of great disappointment if OPEC+ fails to do the ‘right thing.’”
Crude prices are rising even as coronavirus cases are spiking nationally, prompting another wave of business and travel restrictions in parts of the country. Economic lockdowns, like they did earlier this year, would dampen demand for gasoline and jet fuel and increase crude stockpiles, which had been improving in recent weeks.
The nation’s commercial crude inventories for the week ended Nov. 20 fell by 800,000 barrels from the previous week but are 6 percent higher than they usually are this time of year, the Energy Department said Wednesday.
Investors seem to be shrugging
off the possibility of further lockdowns as they seize on positive vaccine trials. Three major pharmaceutical companies — Pfizer, Moderna and AstraZeneca — recently announced significant progress on vaccines, boosting stock markets and commodity prices.
If vaccines become widely available and travel resumes, Bank of
America analysts said this week, global benchmark Brent crude could reach $60 a barrel next summer.
“We think the biggest uptick on the virus is yet to still come from the transportation sector,” said Francisco Blanch, Bank of America’s head of global commodities. “If the U.S. and Europe reach herd immunity by the second half of 2021, global mobility could recover very quickly, including air travel.”
Bank of America’s forecast relies on the successful implementation of a vaccine and OPEC production cuts remaining in effect, Blanch said.
It’s also contingent on the incoming Biden administration maintaining economic sanctions on Iran. If they were lifted, Iran could flood the oil market with 2 million barrels a day.
Blanch warned, however, that an uptick in crude prices could be short-lived as nations act to slow climate change and consumers buy more electric vehicles. Bank of America predicts that global oil demand could peak in 2026 or 2027.
President-elect Joe Biden this week named John Kerry as the new U.S. “climate czar” in charge of realigning the country with carbon emissions targets set by the Paris accord of 2015.
“This will be a big area of focus for this incoming group into the U.S. government,” Blanch said. “John Kerry was one of the architects of the Paris accord. He will push hard to get the U.S. back on track.”
Moreover, electric vehicle sales are poised to skyrocket as automakers roll out all-electric and hybrid models. In six to seven years, a third of new automobile models will have an electric engine, Bank of America says.
“We see abig shift away from hydrocarbons,” Blanch said. “That’s something the oil market will have to contend with … within the next three to five years.”