Oil price outlook brightens
Analysts at BofA attributed the higher forecasts to Opec’s recent actions that extended Saudi Arabia’s 'unilateral actions' to hasten the removal of the global inventory overhang that still weighs on the long end of the curve
Bank of America (BofA) raised its 2021 price forecasts to $60 for WTI crude, from a previous forecast of $57, and to $63 from $60 for Brent. It also lifted its 2022 forecasts for WTI to $57, from $52 and for Brent to $60 from $55.
Analysts at BofA attributed the higher forecasts to Opec’s recent actions that extended Saudi Arabia’s “unilateral actions to hasten the removal of the global inventory overhang that still weighs on the long end of the curve.”
The US investment bank eyes a supply deficit of 1.3 million barrels per day (bpd) in 2021 while predicting a surplus of 170,000 bpd in 2022.
BofA’s upward revision comes a week after both US Energy Information Administration (EIA) and Standard Chartered lifted their oil price forecasts for 2021.
According to its March Short Term Energy Outlook (STEO), the EIA now sees Brent spot prices averaging $60.67 per barrel and WTI spot prices averaging $57.24 per barrel this year. In its February STEO, the EIA projected that Brent spot prices would average $53.20 per barrel and WTI spot prices would average $50.21 per barrel in 2021.
Standard Chartered outlined that it had increased its 2021 average Brent and WTI oil price forecasts by $14 per barrel to $65 per barrel and $63 per barrel, respectively.
Looking at next year, the EIA expects Brent spot prices to average $58.51 and WTI spot prices to average $54.75 per barrel in 2022. Brent spot prices were previously expected to average $55.19 per barrel in and WTI spot prices were expected to average $51.56 per barrel in 2022. Standard Chartered left its 2022 average Brent and WTI forecasts unchanged at $59 per barrel and 56 per barrel, respectively.
“The Opec+ extension of existing supply cuts through April added significantly to near term upward oil price pressures,” the EIA noted in its March STEO.
“In a series of recent reports our commodity team lays out the fundamental case for a tighter oil market in 2021 with Brent range-bound between $50 and $70 over the next five years; our revised price deck sits at the middle of that range,” said BofA.
BofA expects upbeat energy demand saying, “global demand will rebound nearly 6.0 million b/d year-on-year in 2021 after falling 8.7 million b/d in 2020. During 2021-23, we forecast demand will grow by more than 9.0 million b/d, the fastest pace since the 1970s.”
On the supply side, the investment bank said, “Non-Opec supply should grow more than 1.0 million bpd year on year in 2021 and an additional 2.0 million bpd in 2022. US supply to grow less than 200,000 bpd in 2021 and more than 1.0 million bpd in 2022 thanks in part to robust NGL volumes. Opec supplies are set to rise 800,000 bpd in 2021 and 2.1 million bpd in 2022 and Opec+ adds back to supply and as Iran returns.”
“There are a number of reasons to believe that any rally in oil prices to $100/bbl will have to wait until demand recovers more broadly over the coming years. First, US shale oil producers will remain fundamentally short cycle even if less sensitive to 12-month forward oil prices, the time it takes to plan and execute a ramp-up in oil production.” BofA said in the report.
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