OCBC Treasury Research predicted Brent crude oil prices to rise back to USD50/barrel by the end of the year, likely supported to the possible supply deficit that happens as early as October.
However, OCBC said that the level would be as high as it could get, considering the huge stock build-up during the coronavirus pandemic. Nevertheless, prices would have more than doubled from its low during the oil collapse in March.
“We see the potential for short-term corrections each time the one- to twelve-month contango spreads narrow to less than US$2/bbl,” it added.
OCBC estimated if OPEC+ stayed with its current output cut pact, the late fourth quarter of this year would possibly face a sharp supply deficit of nearly 1 million bpd. However, the possibility is clouded by the record-high US oil inventories and the OECD’s inventories which are 50% higher compared to pre-pandemic levels.
It also estimated China to also be stockpiling crude since early 2020 as refinery throughput did not add up to its strong import data
Looking ahead, OCBC forecast Brent crude oil prices to reach USD46/barrel in the third quarter before soaring to USD50/barrel by yearend while the average of this year would possibly be USD39/barrel.
For 2021, Brent would average at USD44/barrel, with an initial dip in the first quarter to USD47/barrel range before climbing to USD52/barrel in the second half.
WTI is seen hitting USD47/barrel by the end of this year with a full-year average of USD35/barrel. Next year, the benchmark would average at USD44/barrel with a yearend climb to USD52/barrel.
The supply dynamics this year would be affected by the possible return of Libya to the oil market. OCBC warned the oil market of an easy turn back into a surplus in supply if Libya’s 1.2 million bpd returns to the market.
