Fitch Solutions has maintained its 2021 Brent forecast, with the benchmark set to average US$53 per barrel in 2021, as the Organization of the Petroleum Exporting Countries (OPEC) looks poised to regulate oil supply based on monthly changes in the demand outlook; the global roll-out of Covid-19 vaccines also provides a boost to global economic recovery and fuel demand.
Fitch Solutions said the OPEC balancing act will seek to return barrels to market as quickly and prudently as possible to ensure expanded market share without having prices rise too quickly, which would encourage non-OPEC production, or adding excess downside price pressures by contributing to elevated storage levels.
“In our view, the early January 2021 meeting of OPEC+ will likely result in a reduction of production cuts as recent price gains look to be consolidating and group members are seeking higher outputs to increase market share. However, fundamentals indicate a more pragmatic approach would be to hold the cuts at the current levels,” it said in a note today.
Fitch Solutions also expects 2021 global fuel demand to grow by 4.6 million barrels per day after falling by 7.1 million barrels per day in 2020 as the global economy continues to recover and transport and commerce return closer to historic pre-pandemic levels.
However, it said its near-term demand growth is stalling due to the resurgence of Covid-19 across North America, Europe and the Middle East and is likely set for deeper declines over the next several months.
“This adds to our view for neutral to bullish prices across most of 2021 with difficult conditions to persist through the first half of the year,” it said.
Fitch Solutions’ mid-term forecast takes the view that following the pandemic, most markets will experience a lower level of demand growth than was seen prior to Covid-19, reflecting softer real GDP growth, rising energy efficiency, falling energy intensity, fuel switching and persistent social distancing behaviours.
“In light of the muted recovery in demand, large-scale supply-side adjustments will be needed in order to rebalance the market and work off swollen global crude inventories,” said Fitch Solutions.
“Sharp capex reductions are driving declines in non-OPEC supply, led by significant losses in the US shale patch. However, we expect shale production will return to growth in 2022, albeit at a reduced rate,” it said.
Source: The Edge Markets