Revising up our forecast for the oil price
Back in mid-September 2020, when Brent was trading at USD43 per barrel, we forecast that prices would rise by over 30% by end-2021. Since then, oil prices have outstripped our forecast, hovering around USD67 at the beginning of May. All things considered, we now think oil supply and demand will be largely in balance during the year, with oil prices likely to fluctuate around current levels. Taking into account developments in oil supply and demand, we have decided to adjust our year-end target for the barrel of Brent to USD69.
Global oil demand is likely to increase in H2 as vaccination campaigns lead to further easing of lockdowns in advanced economies, despite a recent increase in daily new covid-19 cases globally.
Global re-opening is reflected in higher forecasts for oil demand (by +230,000 barrels per day on average in 2021, according to the International Energy Agency). By the end of the year, we expect global oil demand to be 3.7 million barrels per day (mbd) higher than it is now. Nonetheless, global oil demand is likely to remain 3mbd below the level of Q3 2019, before the pandemic struck.
The expected increases in oil demand are perfectly manageable given abundant production capacity. Even after it has increased output by 1.6mbd as planned by July, OPEC+ will still be pumping 5.8mbd less than in April 2020.
OPEC+ is unlikely to let oil prices go too high because of fears of losing market share to the US. It is more likely to increase supply incrementally, depending on the rise in oil demand. Should this be the case, oil prices could fluctuate around their current level.
However, the return of the 1.5mbd of missing Iranian production would be a game changer. The Iranian presidential elections in June will be decisive in this regard. Setbacks on the pandemic front or an abrupt increase in geopolitical tensions (currently estimated to be close to zero) could also upset our forecast that oil prices will stay around current levels.