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Progress in vaccine development and expectations that OPEC + will decide in less than two weeks to extend current cuts for three months instead of easing them from January 2021 give hope that the oil market will regain some semblance of d ‘balance next year, pushing prices higher.
Currently, the general consensus among analysts and agencies is that oil prices will indeed rise in 2021, as above-average stocks decline as the global economy recovers and demand for oil recovers.
Several bullish signals in recent weeks have made oil market players and analysts more optimistic about the oil market next year, despite the current second wave of COVID-19 infections sweeping through Europe and the world’s largest consumer. oil to the world, the United States.
First, US crude oil and oil inventories are still above five-year average levels, but they fell from their peaks earlier this year, according to estimates by Reuters Market Analyst John Kemp based on EIA data.
Then, the demand for oil in Asia has visibly strengthened in recent weeks, giving the oil market hope that at least in one region, demand is strong in the fourth quarter.
Then, hopes for an effective vaccine Receiving FDA approval soon also raises hopes that life could return to some form of normalcy at some point in 2021.
Related: Something Very Unusual Just Happened In Chinese Crude Stocks All of these factors resulted in the shallowest contango in the first month this week and the six-month spread in the Brent Brent futures market since July, suggesting that market participants now expect vaccines and the economic recovery next year to help rebalance the market, which would push up oil prices.
Current expectations for oil prices point to gains, especially in the second half of 2021.
EIA waits in its November Short Term Energy Outlook (STEO) that as global demand for oil increases, inventory drawdowns in 2021 will put upward pressure on oil prices, and Brent is expected to average $ 47 a barrel next year, up from $ 44 a barrel early Friday.
Reuters analysts’ latest monthly poll, ahead of vaccine progress announcements, expected Brent price averages $ 49.76 per barrel in 2021, down from the $ 50.41 expected in the previous survey.
However, the risks to oil prices are likely still skewed downward, as the surge in COVID cases in the United States and Europe results in new lockdowns, curfews, masked warrants and restrictions, which would weigh on short-term economic activity and transport demand. Uncertainty about the severity of oil demand and how quickly developed economies and demand will recover from this second wave will continue to put downward pressure on prices, at least early next year. . The vaccine’s impact on oil demand and oil spot prices is not expected to manifest in the first half of 2021, according to the International Energy Agency (IEA) said last week.
In addition, in the coming week, fuel demand in the United States will not receive its usual increase in Thanksgiving travel as only 35% of Americans will travel for holidays, up from 65% in 2019, even though the prices of the Thanksgiving Gasoline To Be Lowest Since 2016, GasBuddy Survey shown.
“The survey results show continued anxiety on the part of motorists, even with the lowest Thanksgiving gas prices in years, highlighting the challenges we face in this pandemic,” said Patrick De Haan, head of petroleum analysis at GasBuddy.
Related: Climate Goals Could Cut Natural Gas Investments By $ 1 trillion
The muted vacation travel will come after an increase in gasoline inventories in the United States, even though gasoline production has fallen.
In the week ending November 13, gasoline stocks increased by 2.6 million barrels, compared to a drop of 2.3 million barrels the week before, the EIA said in this week’s inventory report. Gasoline production averaged 9.1 million bpd last week, up from 9.3 million bpd a week earlier. Distillate inventories have fallen, but are still about 11 percent above the five-year average for this time of year.
Another concern for US stocks and prices is that Cushing stocks – the designated delivery point for NYMEX crude oil futures – have risen to 81 percent of capacity. EIA data shown as trading inventories of crude oil at Cushing rose 1.2% during the week ending Nov. 13. At 61.6 million barrels, inventories are 39.3% higher than at the same time last year.
The pace of recovery from the current challenges of oil and fuel demand and the rate of inventory reduction over the next year will determine the trend in oil prices until safe and effective vaccines become available to critical mass. of people.
“Once deployed, the vaccine should ensure a recovery in demand for oil towards the trend. But the first inventory levels and reserve capacities held by OPEC + must be reduced, which could lead us into the second half of 2021 before a significant recovery in oil prices can occur, ”Ole Hansen , Head of Commodity Strategy at Saxo Bank, said this week.
By Tsvetana Paraskova for OilUSD
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