Brent Crude prices are set to average $42.35 a barrel this year and $49.25 per barrel in 2021, according to IHS Markit’s latest price forecast, which was raised by $7 a barrel for next year compared to the previous projection in May.
After the worst of the demand crash in April, oil markets are now “at a delicate pivot point as they transition to phase II” of the recovery expected by IHS Markit.
In recent weeks, oil prices have been relatively stable, with Brent Crude trading in the narrow $40-$45 per barrel range. The price of Brent “could conclusively pass the $50 per barrel mark in the second half of 2021,” Roger Diwan, vice president financial services at IHS Markit, said in a note on Thursday.
Brent Crude prices are expected to remain in the $40-$47 per barrel price range on average over the next four quarters, if there isn’t a major second wave of COVID-19 that could prompt widespread economic shutdowns, according to IHS Markit.
The current market fundamentals are not conducive to a jump in oil prices as OPEC+ and North American producers are bringing back a total of around 4 million bpd on the market in July and August, the consultancy says. At the same time, there are signs of stalling oil demand recovery, while China’s record crude buying spree may be coming to an end. Related: Natural Gas Has Replaced Over 100 U.S. Coal Plants In The Last Decade
“As long as prices hold in the current range, demand concerns will likely help keep the [OPEC+] agreement on course. When prices surpass $50/bbl, potentially lifting capital spending in the United States higher, that is when changes to the tenor of the discussion, and the divergence of interest could start to play out,” Diwan said.
Oil prices are unlikely to go much higher than current levels if global oil demand recovery doesn’t pick up in a meaningful way in the second half of the year, the monthly Reuters poll of analysts and economists showed last week.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com:
- Russia’s Largest Coal Mine Gets Unexpected New Owner
- Venezuela’s Rig Count Officially Falls To Zero
- Oil Prices Soar After EIA Reports Large Crude Draw
Oil prices are being propelled upward by two major bullish factors. The first is China whose crude oil imports have been breaking records in the first half of 2020 rising 10% higher than the same period in 2019 despite the destructive COVID-19 pandemic.
The second factor is the steep decline in US oil production which according to my calculations must have declined by an estimated 6.3 million barrels a day (mbd) this year so far as a result of the pandemic compared with a claim by the US Energy Information Administration (EIA) that the decline was only 2 mbd. This loss was totally incurred by the US shale oil industry. US oil production will be struggling this year and the following years to reach 6-7 mbd.
Based on the above, oil prices could be expected to hit $45-$50 a barrel in this half of the year and touch $60 in early 2021.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London