Brent Crude prices are set to average $50.67 a barrel in 2021, marginally down from the level at which they traded early on the last trading day of 2020, the monthly Reuters poll of analysts and economists showed.
However, Goldman Sachs’ analyst sounded more bullish, predicting Brent to average $65 a barrel next year. The investment bank cited mass vaccinations and the limited increase in production from Opec+ as factors driving the favorable trend.
Goldman’s commodities chief Jeffrey Currie said oil inventories are also declining due to strengthening demand from Asia, which has added to the general optimism about oil prices next year.
Dr Mamdouh Salameh, international oil economist and professor of Energy Economics at ESCP Europe Business School, UK, said he would go a step further than Goldman and project that Brent prices could average $65-$70 a barrel in 2021.
Grounding his projections on a host of bullish factors, Salameh said in a note that the global economy is projected to grow in 2021 by 5.4 per cent compared with 3.3 per cent in 2019 led by emerging markets particularly China and India.
“Second, both the global oil market fundamentals and the global economy are being invigorated by the start of mass anti-Covid vaccination around the world.
“The underinvestment in oil and gas will put upward pressure on oil prices. At the height of the pandemic, oil and gas investment estimated at $131 billion that was slated to be approved in 2020 were shelved, some indefinitely. This could push oil prices to between $80 and $100 by 2024,” Salameh said.
He said the fourth factor is the continued Opec+ production cuts until the end of the first quarter of 2021. Another reason is that “with outstanding debts approaching $1 trillion and a breakeven price of between $60 and $65 a barrel for most drillers, US shale oil could hardly expect to stage a comeback soon.”
According to the 39 experts polled by Reuters, the key downside risk for oil prices in 2021 would be the mutating strains of the coronavirus that threaten economic and oil demand recovery with lockdowns and travel restrictions.
In the December survey, the analysts raised their average expectations for Bent prices for 2021 to $50.67 per barrel, up from the forecast of $49.35 a barrel in the November poll, but below the price at which Brent Crude traded on Thursday, $51.13.
The analysts also raised their forecast for the average price of West Texas Intermediate (WTI), expecting the US benchmark to average $47.45 a barrel in 2021, compared to $46.40 in the November poll.
Another factor to watch in 2021 will be the Opec+ oil production policy and whether the alliance will ease the cuts before demand can absorb the additional supply.
The market will get the first glimpse into the Opec+ thinking as early as today, the first trading day of 2021. The ministers of the group are meeting on today to discuss production from February.
“If Opec+ loosens the production cuts too quickly, there is a threat of a price setback. But if it is too cautious (and prices rise significantly), a rift could arise and US shale oil production could rise again,” Commerzbank analyst Carsten Fritsch said.
Brent and WTI futures were down more than 20 per cent in 2020 though Brent has more than tripled since April, when it hit a more than a 20-year low of $15.98 per barrel.
Despite renewed fears about oil demand due to the new coronavirus strain, Russia is reportedly still in favor of another 500,000 bpd hike in the alliance’s oil production
Analysts said in addition, a probable end to the trade war between the US and China and a de-escalation of tension between Iran and the United States under a Biden administration could provide an additional impetus to the global economy.
“In view of the above, the Brent oil price could be expected to hit $60 in the first quarter of 2021 and $70-$80 in the third quarter. This trajectory will give an average price of $65-$70 in 2021 rising to even $100 by 2024,” said Salameh.
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