The recovery in oil demand and the less-than-feared demand destruction earlier this year will support oil prices next year when producers will be playing catch up with demand, and Brent oil prices could rise to $66 a barrel, according to Energy Aspects.
Brent Crude prices are set to jump to $66 a barrel in 2021 and $83 a barrel in 2023, from $43 per barrel in 2020, Amrita Sen, co-founder, Director of Research, and Chief Oil Analyst at Energy Aspects, said in a presentation at a virtual energy conference, as carried by Bloomberg.
According to the energy analyst, the worst of the demand destruction was 18 million barrels per day (bpd) during the April lockdowns, while expectations were for many more barrels lost, to the tune of 30 million bpd. Energy Aspects itself had expected a drop of 28 million bpd, while the actual maximum demand loss was 18 million bpd, Sen said.
Deloitte also said prices would be going up next year and the following two years, as demand continues to recover, according to its oil price forecast seen by Bloomberg. Deloitte sees Brent Crude prices averaging $39 a barrel in 2020, but rising to average $46.50 next year and $64 per barrel in 2023.
Goldman Sachs also expects that prices will rise in 2021, although the short-term forecast stays at $35 a barrel, according to Jeff Currie, global head of Commodities at the investment bank.
Currie is sticking to the $35-a-barrel oil price forecast over the short term, he told Bloomberg last week, adding that if prices increased quickly, they would interfere with the market rebalancing by bringing more shale production back online.
As for demand and supply, Currie noted a marked improvement in demand, although in some parts of the U.S., it may be adversely affected by the resurgence in Covid-19 cases, notably in Texas and Florida.
By Tsvetana Paraskova for Oilprice.com
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Other supporting factors are the OPEC+ production cuts, the easing of the global lockdown and the realization that demand destruction as a result of the COVID-19 pandemic was 18 mbd and not 30 mbd as was previously estimated. These developments could push oil prices to $45-$50 a barrel during the second half of the year and touch $60 in early next year.
However, prices are not going to stop there. The global oil market could be headed towards a major supply deficit estimated at 10-15 mbd sometime in 2022/23 sending oil prices rocketing above $100.
Many major factors could contribute to this impending deficit prominent among them the virtual collapse of US shale oil production, China’s unquenchable thirst for oil and a huge decline in global investments in oil exploration and production.
US shale oil industry will be struggling this year and the next three years to maintain a production of even 7 mbd.
Another factor is China’s unquenchable oil thirst. China is pulling the global economy out of its ordeal. My projection is that global oil demand will end the year at 98.34 mbd, a mere 3 mbd less than 2019 level of 101.34 mbd. By the end of 2021, global oil demand is projected to more than match 2019 levels.
A third factor is that global energy investments are expected to drop by an “unparalleled” 20% this year according to the International Energy Agency (IEA). The pandemic has also forced the global oil industry to defer as much as $131 billion worth of oil and gas projects slated for approval in 2020.
Dr Mamdouh G Salameh
International Oil Economist
Visiting Professor of Energy Economics at ESCP Europe Business School, London