Bank of America expects oil prices to recover to $60 a barrel for Brent crude in the first half of next year thanks to shrinking global inventories and prices improving faster than previously expected.
“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,” Bank of America’s analysts said as quoted by Trade Arabia.
However, since then, oil futures have been rising faster than expected even though spot prices remained range-bound, the bank noted. Because of this and because it expects an oil market deficit of 4.9 million bpd for the second half of this year and another of 1.7 million bpd next year, BofA expects prices to shoot up.
The bank’s analysts noted the slump in drilling rigs, notably in the U.S. shale patch, and the OPEC+ oil production cuts as some of the main factors that would push the oil market into a deficit and prop up prices.
However, the demand side remains a downward pressure for prices. The IEA and OPEC were the latest to sound a cautious note in their respective monthly reports. The IEA said it expected oil demand this year to be down 8.1 million bpd from last year, while OPEC estimated a demand loss of 9.1 million bpd this year.
With so much demand lost, the news that supply was on the rise in July did not sit well with oil traders. According to the IEA, supply rose 2.5 million bpd last month as Saudi Arabia relinquished its voluntary additional cuts of 1 million bpd and as the UAE fell short of its production quota. U.S. output also began to rise in July, casting a shadow over expectations of supply tightening.
According to ANZ, oil demand currently stands at 88 million bpd. That is up 8 million bpd on April but still 13 million bpd below demand levels from August 2019.
By Irina Slav for Oilprice.com
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