Oil Prices Seen Remaining Subdued Into 2021 -- Update
November 27 2020 - 1:18PM
Dow Jones News
By David Hodari
Oil prices are expected to remain subdued into the new year,
with murky prospects for the global economy and supply of crude
weighing on the outlook.
Futures for West Texas Intermediate, the U.S. benchmark for oil,
will likely be about $43.25 a barrel in the first quarter,
according to a survey of 10 investment banks, suggesting the market
will remain within a narrow band. WTI futures slid 0.3% to $45.58 a
barrel Friday.
Next week's meeting of the Organization of the Petroleum
Exporting Countries and its partners, at which the alliance will
decide on production levels from January, will determine the
direction of the market in the short term, analysts said.
Over the longer haul, uncertainties remain. Covid-19 vaccines
could boost global economic prospects and bolster demand for oil in
2021, if there is widespread distribution of the shots. However,
elevated levels of coronavirus cases in both the U.S. and Europe
could prompt fresh restrictions on travel and business, weighing on
demand.
"We're going to continue to have volatility as we get to the end
of the Covid pandemic," said Richard Fullarton, chief investment
officer at hedge fund Matilda Capital Management. "We don't know if
or when the vaccines will come in, we don't know if OPEC will cut
or raise production too early, and we've got a new president."
Futures for Brent crude, the international benchmark, may
average about $46 a barrel in the first quarter, the banks
forecast. The gauge rose 1% to $48.27 a barrel Friday.
Both Brent and WTI have risen more than 25% in November and are
on course for their second-best monthly performance in more than a
decade. Back in May, Brent climbed 43% as the market recovered from
the multiyear lows hit in spring because of lockdowns and travel
bans.
The West's latest round of lockdowns has been less rigorous than
those in the spring, and less disruptive to economic activity.
That, combined with more purchases of physical barrels of oil in
Asia, has helped rejuvenate demand.
The market may get another boost if low interest rates and huge
stimulus packages in the U.S. weaken the dollar in coming months.
That would make oil, which is denominated in the greenback in
global markets, cheaper for other countries.
Brent prices may recover to over $53 a barrel in the fourth
quarter of 2021, according to the banks' forecast, still a far cry
from the $68.91 hit in early January before the pandemic-led plunge
in demand. The projection assumes that vaccines will have helped
normalize economic activity and allow the world to begin burning
through its glut of crude.
WTI futures could climb to just over $50 a barrel in the final
months of 2021, according to the banks' forecast.
For now, investors are focused on OPEC, said Harry
Tchilinguirian, global head of commodity-markets strategy at BNP
Paribas.
Tensions have emerged between members of the alliance ahead of
next week's meeting. Iraq and Nigeria, whose economies have been
battered by low oil prices, are pushing for production increases.
The United Arab Emirates, long a staunch ally of cartel-leader
Saudi Arabia, is considering quitting OPEC altogether, according to
S&P Global Platts.
If the cartel fails to extend the current cuts and presses ahead
with plans to increase production by almost 2 million barrels a
day, that could spook markets. OPEC is holding back 7.7 million
barrels of oil a day -- or almost 8% of pre-pandemic demand levels
-- from the global market, according to the International Energy
Agency.
"The oil market is undersupplied, but it's an artificial
undersupply and not a structural one," said Giovanni Staunovo,
commodity analyst at UBS Wealth Management. "There is not
sufficient investment activity outside of OPEC Plus that will
change that."
Write to David Hodari at David.Hodari@dowjones.com
(END) Dow Jones Newswires
November 27, 2020 13:03 ET (18:03 GMT)
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