Bank of America (BofA) Global Research has revised its average WTI Crude price forecast to US$39.70 a barrel this year, up from a previous projection of US$32 on the back of stronger demand recovery and OPEC+ withholding more supply from the market than initially thought.
BofA forecasts that the U.S. benchmark will average US$47 a barrel in 2021 and US$50 in 2022 in a note carried by Reuters.
Bank of America expects Brent Crude prices to average US$43.70 per barrel this year, up from its previous forecast of US$37 per barrel. Brent Crude is set to average US$50 and US$55 per barrel in 2021 and 2022, respectively, according to the bank.
The three key reasons for Bank of America's more optimistic outlook on oil prices are the stronger-than-expected demand recovery, the solid OPEC+ pact, and the curtailments across the industry due to the low oil prices.
"As we head into next year, we believe transportation demand could recover at a faster rate than we initially anticipated," the bank said.
According to BofA, inventories in most regions are expected to begin drawing down in the second half of this year, and the full Brent futures curve could flip by the end of the year to backwardation - the market situation that typically occurs at times of market deficit. In it, prices for front-month contracts are higher than the ones further out in time. Related: WTI Jumps To $40 On Demand Recovery
According to BofA, the two key downside risks to oil prices will be a resurgence in previously curtailed production because of higher prices and a second wave of coronavirus infections.
Even if there were a second wave, BofA does not see simultaneous lockdowns around the world (as happened in Q2), even if stay-at-home orders in some places are reinstated.
Earlier this month, Barclays lifted its oil price outlook for this year by US$4 a barrel, with Brent Crude expected to average US$41 and WTI Crude US$37 a barrel. The bank, however, warned that price improvements would be slow.
Early on Monday at 8:50 a.m. EDT, Brent Crude was down 0.55 percent at $41.96, and WTI Crude traded down 1.01 percent on the day at $39.35.
By Tsvetana Paraskova for Oilprice.com
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