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As the end of 2020 approaches, we are reminded of statistical certainty when it comes to oil price forecasts. If you define anything other than a range, you will be wrong. And even for forecasters and predictors setting a range, the probability that the actual price is within the chosen range is about as sure as a selected price range by throwing a dart at a number on the wall. That has never stopped oil price forecasters from getting started.
We’ve rounded up some of our favorite oil price predictions from this year. And while you think that may not be a fair exercise given the black swan event such as the coronavirus pandemic, we will remind you that the predictions made even in the midst of the pandemic were quite suspect.
The US Energy Information Administration (EIA) has the unfortunate position on our list to start. His January prediction for 2020, oil prices for both WTI and Brent would later turn out to be high – not surprising given the events about to unfold. Although there have been reports that an epidemic was brewing from the first days of January 2020, it was not until January 13 that the first case of Covid-19 was known to have escaped Chinese borders. But when the EIA released its STEO on January 14, demand for crater oil from the future pandemic was not even on its radar. What was on his radar? Tensions between the United States and Iran and the corresponding fear of some disruption in oil supplies to the Middle East.
His forecast for the price of an average WTI barrel throughout 2020 was $ 59.50 per barrel, while his forecast for Brent was $ 65 per barrel. This compares to an average Brent price of $ 64 in 2019. But Brent fell sharply in January, and on February 4, Brent closed the day at just $ 54 as the world already – before the pandemic – feared. a slowdown in demand for oil.
For the following months, the EIA adjusted its price forecast downward, but still in pursuit of prices that had fallen downward the previous month.
While the EIA turned too high because it had no prior knowledge of Covid-19, Morgan stanley maybe pulled too low. Morgan Stanley released a Brent Forecast in May at the height of lockdowns which could best be described as safer-not-always-better. His prediction on Brent, made towards the end of May, was that Brent would trade at $ 40 a barrel by Christmas. Of course, Brent received its own vaccine when several vaccine candidates were found to be effective and limited deployments were due to start a few weeks before Christmas. Then OPEC had talks about not easing its production cuts as promised, injecting more optimism into the market. On December 3, the day OPEC + finally came to an agreement to increase production only slightly in January, Brent had hit $ 48.70 a barrel – 22% above Morgan Stanley’s forecast.
ExxonMobil isn’t your traditional market analyst, but he certainly has more skin in the game than most analysts. At the end of November, which can hardly be considered a price prediction for 2020, the American supermajor lowered its oil price expectations until 2025 between 50 and 55 dollars per barrel. Exxon’s oil price forecast is considered proprietary, so this rare snapshot (courtesy of the WSJ) of what it believes to be the next five years in oil prices should not be discounted. Exxon’s forecast for 2025 for Brent was $ 62.
Related: Oil Jumps on Large Crude Inventory Drawdown
Speaking of security, there is security in numbers. Just two weeks after the EIA released its oil price forecast for 2020 in January, Reuters conducted a poll of 50 economists and analysts. But just because there were more of them didn’t mean they were more right. In fact, this forecast, which pegged the average Brent price in 2020 at $ 63.48, serves to highlight just how everyone was. A April poll Reuters’ mid-lockdown sang a very different song, expecting Brent to average just $ 35.84 a barrel.
Goldman Sachs sharply lowered its oil price T2 forecast towards the end of March – in fact, it was the second downward adjustment in just a few weeks as the pandemic took its toll on oil markets. For the second quarter, Goldman estimated that Brent would average $ 20 a barrel. While the April average ended up being below $ 20, the average price of Brent in May was just under $ 30 a barrel and by June prices had climbed back to $ 40.
In June, as Brent was trading near $ 40, optimism was starting to return to the market. Therefore, Bank of America (BofA) in June adjusted upward its forecast for a barrel of Brent in 2020, at $ 43.70 (compared to its previous estimate of $ 37). While BofA ended up being closer than many (which is to be expected with almost half of the year being placed in the Known category), BofA will likely end up being around $ 10 too low. When he made the predictions, of course, the optimism of the vaccine candidate was not yet present in the market. What BofA also couldn’t have predicted is market sentimentality in the face of this optimism and complete and highly atypical disregard for what would be booming crude stocks in the United States.
Fast forward to September, when many lockdowns around the world have cleared. Barclays Commodity Research raised its forecast for Brent for 2020 – three months out of the year – to $ 43 per barrel, citing a limited potential drop in its demand outlook on “maintaining the OPEC + holdback” after the cartel decided to hold members accountable for failing to meet their production reduction quotas, and “the evolution of the response function of governments as well as the general public to the viral threat. “Brent was trading close to $ 43 at the time of the expected rise.
No matter where the predictions seemed to land, no prognosticator has done it right this year, unless of course they’ve been making projections in the last month of the year. This January forecast – even without an agenda, the best of the best – shows just how volatile the oil market has become and can be used to broaden the forecast ranges we see offered for 2021 and beyond.
By Julianne Geiger for OilUSD
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