Saxo Bank predicts Brent could recover to $50-70 levels by first half of 2021

The Danish bank expects a pick-up in Brent to $40 levels by "autumn" and a revival in demand to 100 million barrels per day by 2021. Reuters

Brent, the international oil benchmark, could pick up to between $50 to $70 per barrel by the first and second quarters of 2021 as demand increases and supply is balanced following shut-ins this year, according to Saxo Bank.

"The markets just like stock markets [could also] start to look ahead to when we have a potential shortage. We could see the market rally even before it is fundamentally justified," Ole Hansen, head of commodity strategy at the bank, told reporters.

The Danish bank expects Brent to pick-up to $40 levels by "autumn" with energy demand to reach 100 million barrels per day by 2021. The international benchmark, under which two-thirds of the world's oil is traded, has plummeted nearly 77 per cent in value from its most recent peak in January.

Brent fell to the lowest levels seen since 2002 earlier this month after West Texas Intermediate, the US crude benchmark, fell into negative territory.

Demand for crude has slipped as the coronavirus pandemic prompted governments to enforce strict lockdown measures and border closures that crippled air travel demand and curtailed ground transportation.

Meanwhile, oil producers have been scrambling to find storage as record crude production overwhelmed a market facing a steep drop in demand.

"It's going to be a very slow process to return to normal [hence] the big gap between production and demand. Unless we see forced shut-ins, that gap will remain for at least another three to four maybe six months and once we reach balance, then we need to have the storage levels brought down," said Mr Hansen.

WTI's plunge to -$40 earlier this month is a recurring risk as long as storage options in the US remain constrained. Some analysts are speculating US futures could drop as low as -$100 per barrel when the next monthly contract is due to expire.

Brent crude prices could pick up in 2021 as demand increases and supply balances

The USO, the world's largest exchange-traded oil fund, exited its June futures position earlier this week, triggering a fresh collapse in WTI prices.

The benchmark's fall into negative territory in April was partly blamed on ETF activity by small-time investors.

The Chicago Mercantile Exchange, where the futures are traded, would look to avoid a repeat of the sub-zero plunge, noted Mr Hansen.

"There is a risk and we could see this recurring for the next few months but because the focus is so much on it, it's probably one of the reasons why it's not going to happen. Now [that] we know it can happen everyone involved in the market will try and mitigate the risk of it happening again," he added.

The bank expects heavy selling from the producers locked in the futures market and possible difficulties when some of them look for delivery.

Inventories at Cushing, Oklahoma -  the delivery point for WTI - remain strained as storage neared 78.5 per cent of capacity, according to the Energy Information Administration's report last week.

About 4.8 million barrels were added by mid-April, taking the capacity to 59.7 million. The maximum capacity at the inland oil town is 76 million.

Brent was up 12.47 per cent trading at $25.35 per barrel at 5.52pm UAE time, while WTI was up 13.35 per cent at $17.07 per barrel.