Brent crude could hit $60 a barrel by next summer as travel restrictions get eased, Bank of America said, citing growing optimism around Covid-19 vaccines.
The easing of restrictions will lead to a boost in oil demand, the bank said, as quoted by Bloomberg, and this will boost prices as it creates a deficit of 1.6 million bpd by mid-2021.
Vaccine optimism has already pushed oil prices to the highest in eight months despite warnings that it is too early to buy into the vaccine hype, which has this month alone spurred a 25-percent jump in oil prices, according to Bloomberg.
The increasingly likely extension of OPEC+ production cuts has helped prices along, too. The cartel is meeting next week to discuss the extension. According to a forecast by Goldman Sachs, OPEC+ will extend the current cuts of 7.7 million bpd by three months, which would push Brent crude to $47 a barrel.
Interestingly enough, it was Bank of America analysts who last week warned against excessive optimism based on the latest vaccine updates from Pfizer, Moderna, and AstraZeneca.
“We say credit and equity prices (are) to peak in coming months on peak positioning, peak policy, peak profits as optimism tops ahead of vaccine distribution,” they said.
Even so, traders are buying the hype in droves. Even bearish news such as the EIA’s latest weekly update that showed U.S. oil production had risen to 10.9 million bpd and an estimated inventory build reported yesterday by the American Petroleum Institute did not stop the rally. Related: Venezuela Arrests Oil Workers To Cover Up Bad Press About PDVSA
“The fight against the coronavirus is intensifying and is proving to be increasingly successful by the week,” said PVM analyst Tamas Varga, as quoted by the Financial Times. What started as a fear-of-missing-out rally, according to him, has now become a “fundamentally justifiable price rise.”
For Goldman Sachs, the OPEC+ pact carries more weight.
“We continue to view a co-ordinated action to curtail output as the optimal near-term action given the still elevated inventory overhang and with the current wave of infections surprising by its breadth and intensity,” the bank said, as quoted by the FT.
By Irina Slav for Oilprice.com
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