Oil prices are at their highest level in eight months. This is how the market reacted to the news about vaccines and the OPEC+ decision. Analysts expect a revival of the global economy, the lifting of restrictions, and an increase in black gold demand.
In 2020, the global oil market experienced several waves of decline. A complex of factors affected, the main ones being overproduction of raw materials with a sharp drop in demand and the pandemic and widespread restrictions. In March alone, oil prices more than doubled.
However, in late autumn, the market received a powerful boost – news about successful Western vaccine trials, the outcome of the US presidential election. Joe Biden is a supporter of green technologies and, unlike Donald Trump, is not going to support American oil workers.
The fight against coronavirus is intensifying, becoming more and more successful. Estimates of oil demand in 2021 will be adjusted upwards, according to Reuters.
However, despite the optimism, the situation is still unstable. The international rating agency Fitch expects a recovery in oil demand only if rapid progress is made in vaccinating the population. And, according to analysts, the improvements will be “moderate.”
OPEC + has surprised
In early December, the OPEC + alliance countries decided to increase production January by 500 thousand barrels per day. The future will be determined based on the results of monthly ministerial meetings. At the same time, the validity period of the new agreements was not set.
Quotes immediately soared to an eight-month high; Brent is confidently approaching $ 50 per barrel. And the ruble has strengthened somewhat.
The decision of OPEC+ seems unexpected — after all, the second wave of the pandemic is not over yet, and demand is recovering slowly. However, the agreed increase is only a quarter of what was expected in January. For the players, this is a signal: the alliance is counting on the revival of the market and at the same time is ready to limit production at any time.
Analysts point out that the option of a smooth increase in production, approved by OPEC+, is beneficial to Russia, which cannot quickly expand production due to technological features and stretched infrastructure. However, at the beginning of the year, the supply of oil may be excessive.
“In April, production will increase by two million barrels per day with a projected increase in demand for the second quarter to only 96.1 million. The outperformance of supply growth over demand after January 1 means that the maximum Brent quotes on the horizon of the next five months were in December, ” notes Yevgeny Mironyuk, an analyst at Freedom Finance.
The company predicts quotes in the range of 40-60 dollars during the year-depending on the effect of vaccination and the removal of cross-border restrictions.
However, any unpleasant surprises can change the situation. After all, not all oil producers are members of the alliance — and nothing prevents them from increasing production.
For example, the US has increased production in recent months by a million barrels. “Based on this, in the first quarter, the price of oil may fall to 40-42 dollars, and then everything depends on the state in which the world powers will come out of the pandemic,” says Oleg Bogdanov, a leading analyst at QBF.
“Oil prices in 2021 are presented in the range of 37-42 dollars per barrel. Pressure on prices will be exerted by the ongoing pandemic and its consequences, as well as the possible desire of OPEC+ participants to increase production to replenish their budgets,” adds Vladimir Volkov, Director of Treasury at CSG Bank.
Up to sixty
On the other hand, leading American banks to predict a rise in oil to $ 60, Goldman Sachs — even to 65. Simultaneously, consumption will decrease by three million barrels per day in winter, which is only partially offset by heating demand and purchases from China, which is still the best coping with the coronavirus.
“But winter problems are only a small obstacle to the oil market’s path to normalization, as is the second wave of COVID-19,” the bank’s analysts wrote in a review.
Bank of America (BofA) forecasts Brent to rise to $ 60 by the end of the first half of the year. Experts are waiting for the lifting of restrictions on movement due to mass vaccination in the West.
Demand for fuel, which provides more than half of global oil consumption, will create a deficit of 1.6 million barrels per day, according to BofA. Commercial storage facilities that have accumulated a billion barrels of the surplus will be opened. The average oil price for the year will be $ 50, according to the bank’s review. However, do not forget that one of the key risks is lifting sanctions on Iran, which is likely under Biden, and the rapid return of Iranian barrels to the world market.