Brent likely to average $50 per barrel in 2021, BofA says

Lender also revised its forecast for WTI up to $47 per barrel for 2021, anticipating a tighter market for oil supply and demand

Workers weld a pipe at a Colgate Energy LLC site in Reeves County, Texas, U.S., on Thursday, Aug. 23, 2018. Spending on water management in the Permian Basin is likely to nearly double to more than $22 billion in just five years, according to industry consultant IHS Markit. Photographer: Callaghan O'Hare/Bloomberg
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Brent crude could average $50 per barrel in 2021 on the back of a faster-than-expected demand recovery in sectors such as transportation as well as strong supply cuts from Opec, according to the Bank of America. The lender revised its estimate for the world’s most widely-traded crude benchmark upwards by $7.

Brent is expected to average $43.70 per barrel this year, an increase on its earlier estimate of $37 per barrel as many countries lift movement restrictions that were put in place to limit the spread of the coronavirus pandemic.

"Global oil market fundamentals have shifted significantly since we last adjusted our oil price forecasts on March 8, the bank said in a note on Sunday.

"As we head into next year, mobility demand could recover at a faster rate than we initially anticipated. Also, Opec+ will likely hold back larger supply volumes than we pencilled in three months ago,” the lender added. The alliance, led by Saudi Arabia and Russia, is cutting back 9.7 million barrels per day until July, with tapered cuts in place until 2022.

A tighter scenario for oil supply and demand also means an improved outlook for West Texas Intermediate, the key US gauge. BofA revised its forecast for WTI up to $47 per barrel for 2021 and $50 per barrel in 2022. The bank based its assumptions on the return of US shale output to the market in the second half of 2021.

The recent rally in oil prices over the past few weeks tailed off at the end of last week as Covid-19 cases surged globally leading to concerns about the possibility of a second wave of the pandemic.

Brent ended the week down marginally at $41.02 on Friday, while WTI fell 0.6 per cent,  settling at $38.49 per barrel.

"The rally in oil prices has started to stall as an acceleration in the number of Covid-19 cases globally threatens the viability of demand recovery,” said Edward Bell, commodity analyst at Emirates NBD.

"The reopening of several major US states has been put on hold as Covid-19 cases are increasing and in some instances posting record single-day numbers,” he added.

Global cases of the novel coronavirus passed the 10 million mark on Sunday. Many US states such as Florida posted their highest daily counts last week, while states such as Texas reimposed lockdowns after a surge in new infections.

Markets worry about the US undergoing another "extensive lockdown", Emirates NBD said in its latest note.

If that were to take place, a repeat of April’s demand slump is likely to follow with a new collapse in jet fuel demand as well as a steep drop in gasoline  consumption.

"However, we doubt state governments would be ready to order as severe a shutdown of their local economies only a few weeks into reopening, despite the risks to public health," it added.