According to a new global oil market forecast from Moody’s, the price of Brent crude oil is expected to rise from $40 to $45 per barrel in 2021. Based on medium term analysis of the oil market, prices will range from $45 to $65 per barrel, the report highlights.
Considering these prices, Moody’s experts predict that producers of oil will be very keen to develop only the cheapest reserves in the next 3-5 years. Yet, they stressed that, in order that companies would be able to develop resources that can yield high profit margins, they need a price within $50-55 per barrel.
The rating agency also expects that oil and oil product reserves in the world will remain high, but experience onward decline at a slow pace. Already, Shale production in the US has gained momentum in recent times and this is kindled by these same expectations of rising oil prices.
According to experts from the rating agency, the oil market would experience a rebound in 2021, after a very weak 2020. However, companies’ earnings before interest, taxes, depreciation and amortization (EBITDA) will be lower than that of 2019 by about 20 percent, and capital expenditures will also be reduced alongside, the report stated.
The above forecasts are not so different from that of S&P Global Platts Analytics. Platts Analytics experts believe that, prices of Brent crude will soften in the short term to the low of $40 per barrel and then bounce back to $50 per barrel by the end of 2021.
This notwithstanding, they raise caution, noting the uncertainties regarding robust OPEC spare capacity and COVID-19 vaccine deployment. Platts Analytics experts are of the view that oil prices may likely tumble in the first half of 2021, owing to the resurgence of containment measures enforced across the U.S. and parts of Europe, including shutdowns and lockdowns in March and April to control the spread of the coronavirus.
“We feel the current price of $50 per barrel is probably $10 higher than warranted. Oil prices are up right now but it’s really on sentiment rather than fundamentals, said Chris Midgley, Global Head of S&P Global Platts Analytics.”
With oil prices predicted to have such a positive outlook, global oil demand will also rebound, Platt Analytics predict. However, like the rise in global oil price levels, the rise in global demand will not be enough to exceed 2019 levels as the knock-on-effects of the coronavirus pandemic still lingers especially on transportation fuel demand.
“Oil demand will rebound by more than 6 million b/d barrels in 2021, but consumption is still expected to be more than 2 million b/d below that of 2019’s 101.9 million b/d. Why? The global middle class- the engine of oil demand- faces continued pressures from wealth inequality and the ongoing COVID-19 cloud,” Midgley said.
“While in the long-term we are more optimistic about a rebound of oil demand, causing us to upwardly revise our 2021 demand outlook, in the short term, we expect things to worsen, with increased second-wave lockdowns in U.S. and Europe resulting in much weaker gasoline demand across the holiday season.”
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