Oil may hit $50 over the next few months thanks to a moderate decline in global inventories that will accelerate by mid-2021, the chief executive of Vitol, Russell Hardy said as quoted by Reuters.
Oil prices have trended higher this week after Pfizer announced its vaccine candidate for Covid-19 had shown a 90-percent efficacy rate during late-stage trials. However, the sample of study participants the company looked at for this rate of efficacy is quite limited, at 92, to draw any major conclusions.
Still, the immediate and strong reaction of oil prices to the news shows just how important positive news about the pandemic has become amid surging cases, lockdowns, and a rising death toll.
Crude oil benchmarks added as much as 10 percent following the Pfizer news. Oil prices were also supported by a weakening U.S. dollar and Joe Biden’s victory in the U.S. election this weekend, which boosted the appetite for riskier assets and removed the election uncertainty from the market.
Further support for prices yesterday come from the Energy Minister of Saudi Arabia, Abdulaziz bin Salman, who said the OPEC+ production cut deal could be “tweaked”.
“We did tweak and I believe with consultation with our friends, some of them are present here and some of them are not, but I know how heartily they are committed to the principle of tweaking,” bin Salman said at the ADIPEC conference on Monday.
“I would go and argue it could be a tweak even beyond what the so-called analysts are talking about,” he added.
Vitol’s Hardy’s remarks come after earlier this month he said he expected the second wave of Covid-19 infections to remove about half a million bpd in oil demand in Europe. Hardy said at the time he expected global demand to average some 96 million bpd during the winter.
By Irina Slav for Oilprice.com
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Two major developments have occurred very recently that would inject badly needed confidence in a global economy which has been bereft of good news for quite a while.
The first development is the announcement that a vaccine developed jointly by the American pharmaceutical company Pfizer and the German company BioTech can prevent 90% of people from getting COVID-19.
The second is the election of Joe Biden as the next president of the United States. The markets interpreted Biden’s win as conducive to less escalation of tension with Iran and probably an end of the trade war with China.
The abovementioned developments were also strengthened by a continuous decline in global oil inventories which are projected by Vitol, the world’s largest oil trader to accelerate during the first half of 2021 and by Saudi Energy Minister Prince Abdul Aziz bin Salman giving the strongest hint that OPEC+ will extend the current production cuts of 7.7 million barrels a day (mbd) beyond January 2021 and even deepen the them if necessary.
For these reasons, oil prices could be expected to hit $45-$50 a barrel before the end 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