Oil prices have recovered significantly since the historic slump in April – thanks to production cuts and a recovery in demand for the corona lockdown. Now more and more analysts are reacting to this development and are raising their forecasts for black gold. However, the majority of them currently do not believe that the raw material will make major leaps.
• Bank of America and Barclays adjust oil price forecast upwards
• Bank of America anticipates supply deficit oil at the end of the year
• Downside risks remain
An increasing number of analysts are currently bullish on the oil price. While the experts at the US investment bank JPMorgan believe an oil super cycle with prices of up to $ 190 per barrel of crude oil is possible, other analysts are – despite optimistic forecasts – not quite as euphoric.
Bank of America sees long-term rise in oil prices
In an analysis released last Friday by the Reuters news agency, Bank of America has raised its oil price estimate significantly. The analysts of the US institute are now expecting an average price of $ 43.70 per barrel for 2020 crude oil, WTI is expected to average $ 39.70 per barrel. Previously, the bank’s forecasts were several dollars lower: Brent at $ 37 and WTI at $ 32.
The experts are also optimistic for the next two years: In 2021, the barrel of Brent oil is expected to cost an average of $ 50, in 2022 then $ 55, while for WTI an average of $ 47 a year and next 2022 $ 50 per barrel should be paid. So oil prices would offer clear upside potential, especially in the longer term, because with a current price of $ 42.55 for Brent and $ 40.18 for WTI, prices for black gold are already close to the average values, that Bank of America expects for the current year (as of June 24).
There are several factors in favor of rising oil prices – but residual risks remain
The reasons given for the more optimistic forecast are the industry-wide cuts due to the low oil price, which at times made raw material extraction unattractive, as well as the production cuts agreed by OPEC + and a recovery on the demand side. Bank of America is now more optimistic than a few months ago, especially with regard to the development of demand and the OPEC + cuts. “We believe that demand from the transportation sector could recover at a faster pace than we originally thought,” the bank’s experts write in their study, according to Reuters. OPEC + will also “probably withhold larger production volumes than we expected three months ago,” it continues.
All of these factors, according to the US Institute, should contribute to significantly reducing the immense oil stocks that accumulated in the Corona crisis in most regions in the second half of 2020. According to the analysts, there could even be a backwardation at Brent at the end of the year. The price for futures with a shorter term would then be higher than for futures with a longer term – a signal for a supply deficit. In fact, Bank of America expects the oil market to have a deficit of 2.5 million barrels a day as early as the second half of 2020. In 2021, this deficit will then be 1.7 million barrels a day.
However, despite this optimistic assessment, the experts warn that two downside risks to the oil price remain. Bank of America analysts see a second corona wave as a smaller risk, since a lockdown similar to the one in the spring – which was one of the main reasons for the price slump in the oil market – is not very likely in their view. According to the study, however, a greater risk for the price development of crude oil comes from the producers who have shut down their business activities, since these were no longer lucrative enough due to the low oil prices. Should the oil price rise again, these market participants could lift their production restrictions – and thus counteract the reduction of the oversupply on the market. In this case, the bullish outlook could be put to the test, Bank of America admits, according to Reuters.
Barclays are also optimistic about crude oil
But Bank of America analysts aren’t the only ones who see a brighter future for the oil price. Experts from the British bank Barclays also updated their outlook for the oil market in the first half of June. Their price target for Brent is now $ 41 a barrel, that for WTI is $ 37 a barrel – each time $ 4 higher than before, as Reuters writes.
However, the British bank’s experts warn against expecting too much from the oil price recovery. “We believe the rate of price recovery is likely to slow as the steepest drop in production and the fastest improvement in demand are likely to be behind us,” quotes Reuters, the Barclays analysts. With their assessment that the recent recovery may have gone a little too quickly, they are almost in line with the experts at the investment bank Goldman Sachs, who said at the beginning of June that prices on the commodities markets would run away from the fundamentals. Goldman Sachs is therefore expecting a correction in oil prices – and according to the Barclays experts, it should go down again in 2020: For the third quarter, they predict an average price of $ 37 per barrel for Brent, and that for WTI Average price is $ 34 a barrel. At the end of the year, however, they also expect a higher deficit – and higher oil prices.
Editorial office finanzen.ch
–
Image source: 3Dsculptor / Shutterstock.com, Simone Voigt / Shutterstock.com, istock / Valerie Loiseleux
.
