Brent crude has fallen nearly 36 percent from the start of 2020 to trade around $42 per barrel (bbl) as demand significantly reduced due to lockdowns, trade and movement restrictions by countries to curb the spread of the novel coronavirus.
However, 2021 will show signs of a recovery in the beaten down price of oil, leading commodities analyst S&P Global Platts exclusively told Moneycontrol. Dated Brent especially will take over a year to recover to $50/bbl as demand recovers gradually and supply cuts from the Organization of the Petroleum Exporting Countries (OPEC) come into effect.
“For 2021, stock draws, Q1 OPEC+ discipline, and a rising call on OPEC+ for H2 should support Dated Brent prices up towards $50/bbl by end-2021 and WTI to $47/bbl,” Dr Kang Wu, head of Macro, Demand, Risk and Asia Analytics at the firm told Moneycontrol in a written response.
Oil price movements at present reflect market volatility partially as a result of the news that Pfizer and BioNTech’s COVID-19 vaccine was more than 90 percent effective in clinical trials. However, demand and supply fundamentals remain largely unchanged where the demand recovery has slowed down since August 2020, global oil inventory stays high and Libya’s production is returning, he said.
S&P Global Platts Analytics continues to see Dated Brent hovering between the high $30s and low $40s per bbl for the remainder of 2020.
Dr Wu stated that among incumbent United States President Donald Trump and President-elect Joe Biden’s many policy differences, permitting fracking in the US and further negotiations with Iran have the most potential to change the direction of oil markets.
A Biden administration has said it would halt new shale oil extraction permits on federal lands and waters, potentially cutting 1.6 million bbl per day of US oil supply by 2024. On the foreign policy front, the resumption of nuclear negotiations with Iran and aid to Venezuela on a humanitarian basis are possible, setting the stage for up to 3 million bbl/day of oil hitting the market over two years. In both cases, the impact will be gradual, not immediate.
“We see Dated Brent prices break $45/bbl and WTI $42/bbl by Q3 2021,” Dr Wu said, indicating that in the short-term, prices would continue to fluctuate in a very small range.
“The pandemic has taken a turn for the worse, with more lockdowns expected. Libya barrels are rising rapidly. Stocks remain high. OPEC+ is likely to keep current quotas in place for Q1 2021, but compliance will become increasingly difficult,” he continued.
India’s oil demand is expected to get some support over the next couple of months due to the festival season. On a year-on-year basis, S&P Global Platts Analytics expects India’s oil demand to decline by some 10 percent because of the huge decline in the second quarter and partially Q3, before rising by around 11 percent in 2021.