OPEC +, out of necessity, intervened in the oil market on the supply side of the equation to compensate for oil demand depressed by the pandemic. And despite the group’s relative success in cutting oil production to prevent excess oil stocks from skyrocketing before the market fully recovered, the growing number of cases in India has kept oil prices from d ‘faster recovery.
This put even more pressure on OPEC + to meet market expectations. But there is no doubt in the dynamics of the oil markets. Indeed, oil prices have recovered somewhat in recent months, and the overwhelming majority of oil experts and analysts believe that this trend will continue.
The question is not whether the market will improve. The question is how quickly will it improve and at what level will that peak of recovery reach.
The lockdowns in Europe add another unknown element to the composition of oil prices. A month ago, Europe renewed many of its lockdown restrictions, delaying the recovery in oil prices. But now, as India is in the midst of its worst COVID-19 outbreak since the start of the pandemic, Europe is preparing to lift these lockdowns. EU officials this week submitted a proposal to ease summer travel restrictions in its 27 countries. This will increase the demand for jet fuel, a critical component of crude demand.
In the United States, cases of Covid-19 are also decreasing as the number of vaccinated increases. As a result, several US states, including New York, are relaxing the restrictions. All of this will have a profound effect on the price of crude oil. Related: Asian LNG Buyers Prepare For Harsh Winter
But that doesn’t mean all analysts agree on what this will do on oil demand, let alone what effect it will have on oil prices.
The IEA, to begin with, revised upward its outlook for oil demand for this year on April 14. It is estimated that demand for oil will now increase by 5.7 million b / d this year, reaching 96.7 million b / d. The reason for the upward revision was due to increased IEA oil demand forecasts for the United States and China, the world’s two largest oil importers.
As of April 6, the EIA saw global oil demand at 97.7 million bpd this year. Compared to Brent prices which were close to $ 65 per barrel in March, the EIA doesn’t see much movement in the Brent price, estimating $ 65 / barrel in Q2 2021, $ 61 per barrel in H2 2021, and worse. – $ 60 per barrel in 2022.
Not even a week ago, Rystad Energy adjusted its April oil demand down nearly 600,000 bpd. For the month of May, he revised it down to 914,000 bpd, citing demand problems from India due to the pandemic – a situation that would undoubtedly lead to further oversupply.
But not everyone is so pessimistic. Goldman Sachs sees it a lot rosier, with oil hitting as high as $ 80 this summer. The rationale for this positive outlook on oil prices is simple. “The magnitude of the coming change in the volume of demand – a change that supply cannot match – should not be underestimated.”
Rystad analyst Louise Dickson said demand for oil is expected to rise another 3 million bpd by the end of June, whether India has problems or not. According to her, oil prices are expected to return to $ 70 a barrel in the coming months.
UBS sees vaccine deployments as a major asset for the oil industry. As people resume normal activities and businesses reopen completely, demand for oil will cause Brent to rise to $ 75 a barrel in the second half of the year, according to analyst Giovanni Staunovo. Related: Oil Prices Hit 7 Week High On-Demand Optimism
Moody’s also has a rather positive view of the timing of the rebound in oil prices, citing pent-up consumer demand that will propel a global economic recovery. But their medium-term price range is still capped at $ 65 a barrel. Moody’s considers this economic recovery to accelerate a rebound in oil demand through the end of this year and early next year.
The outlook may be uncertain, but the current trend is certainly towards reducing oil inventories – a sign of increased demand for oil as OPEC + continues to restrict production. In the highly visible US oil market, for example, commercial crude inventories have finally returned to the five-year average for this time of year at 493 million barrels.
The explosion of the virus in India will not prevent a recovery in oil prices. But it is very likely that this will slow the recovery well into the second half of this year or even from the start to the middle of next year.
If this turns out to be the case, it will take a long time for OPEC + members to maintain their production restrictions while demand takes its time to recover.
By Julianne Geiger for OilUSD
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