Confidence in Opec+ compliance, a collapse in US shale output and a steady global oil demand recovery are expected to drive Brent crude oil prices to hit $60 per barrel in the first half (H1) of 2021, said the Bank of America (BofA) in a new report.

“Back in June, we upped our oil price forecasts by $5 per barrel (/bbl) and argued that Brent would average $43/bbl in 2020 and $50/bbl in 2021,” BofA said in its latest Global Energy Weekly

Since then, spot oil prices have remained more or less range-bound. Yet balance of the year and Calendar 2021 Brent and WTI prices have picked up steadily at a slightly faster pace than anticipated. Cal21 Brent rose to near $48/bbl this week from the sub $35/bbl April lows and longer dated tenors are also rising.

“Looking forward, we see these trends continuing. Thus large deficits of 4.9 million b/d in the fourth quarter (Q4) of 2020 and 1.7 million b/d in 2021could appear in global oil markets,” it added.

Stripping the US & China, crude stocks have normalized

Stripping out America and China, global crude oil stocks are almost back to normal, with inventories now below the 2016 highs and only 46 million barrels above the 2017-19 average.

“That's a fascinating figure if we consider that America and China are locked into the greatest geopolitical power race since the end of the Cold War. Put differently, China's stock increase is likely permanent. And while America's commercial stocks are driven by economics, not policy, the big drop in shale also means that US may need higher precautionary inventories,” the report said.

If 2nd wave is avoided, focus may shift to deep capex cuts

The bottom line is that the crude market is tighter than it appears, even if mobility in OECD economies remains subdued due to the coronavirus. Yet, fuel demand in China and India has been recovering. Car sales are picking up all around the world. And global fixed asset investment in the broader macro economy has fallen sharply.

Also, the world oil and gas rig count has already collapsed. Further, Aramco this week announced a 50% capex reduction. Against a crushed energy sector and the prospect of improving demand, we have unprecedented money creation.

“Opec's resolve will partly dictate the pace of oil stock draws, but we believe Brent prices could easily rally to $60/bbl next year. Backwardation, if oil keeps rallying, could kick in by 1Q21. This baseline view assumes we avoid a major second COVID-19 wave in 4Q20,” the BofA report said. – TradeArabia News Service