Fitch Ratings said it expected Brent crude to average $45 a barrel next year, following OPEC+’s decision to start raising production by 500,000 bpd monthly from January 2021.
“We expect prices to be, on average, at $45 next year for Brent,” Fitch senior director Dmitry Marinchenko told CNBC today.
“This assumes that the demand will remain weak until at least the second half of the year, because the progress with mass vaccination probably will not be very quick,” he added.
Vaccine news sent oil prices higher at the end of last month, and the fact that OPEC+ had achieved an agreement on the next steps in the production cut deal after long debates helped them stay higher this week.
However, this may soon change as the challenges around vaccine distribution and the fact that there will be more OPEC+ oil coming into markets next year sink in. And that’s without counting Libya, which continues to boost its production, unbound by the OPEC+ deal.
Vaccines are unlikely to significantly affect oil prices, Marinchenko told CNBC, going counter to widespread expectations that once a vaccine is widely available, oil demand will quickly rebound.
In evidence that mass vaccination will not be as simple as many may want to believe, Pfizer said earlier this week it will only ship half of the vaccine doses it originally planned for this year because of supply chain problems.
“With weak demand, and with OPEC trying to manage supply … to avoid large surpluses or deficits in the market, we expect prices to be at $45 next year,” Fitch Ratings’ Marinchenko said.
OPEC+ yesterday agreed to start adding half a million barrels daily to its total in a compromise decision that sought to bridge a deepening gap between those in favor of more aggressive cuts, led by Saudi Arabia, and those who would rather relax the cuts, such as the UAE and Russia.
By Charles Kennedy for Oilprice.com
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If the mere announcement of a vaccine breakthrough sent Brent crude prices surging by 20% within two weeks from $40 to $48 a barrel, then the start of vaccination in December in the United States, UK and the European Union (EU) should at least add another 30% to the price surge when the momentum of vaccination accelerates with increasing availability of the vaccines. Furthermore, the Pfizer/BioNTeck vaccine isn’t the only one in the market. There is also the Oxford/Astra vaccine and the Moderna one in addition to the Russian and Chinese vaccines.
OPEC+ agreed deal will help accelerate the depletion of global oil inventories which have already fallen to an estimated 250 million barrels and along with firming Asian oil demand could push prices even higher.
Against a growing vaccine confidence and the momentum it has generated in the global oil market, Brent prices could be projected to hit $60 in the first quarter of 2021 and $70-$80 by the third quarter. Brent crude could average $60 in 2021.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London