Saturday 27 February 2021

Oil prices nearing $60 ahead of schedule: BofA

DUBAI, January 18, 2021

Brent prices have gotten close to the mid-2021 target of $60 per barrel (/bbl) well ahead of schedule with excess liquidity setting up a tailwind for oil, according to the latest BofA Global Research report.  

While some service-oriented segments of the economy like the hospitality sector remain in recession, many sectors producing industrial or consumer goods are booming. From corn to iron ore to thermal coal to copper, a combination of supply constraints, high liquidity, and robust demand has pushed a range of commodities to the highest price levels in almost a decade, it added.

Expectations of large oil inventory declines in the months ahead have grown on an extension of Opec+ cuts into 1Q21 and the distribution of a number of Covid-19 vaccines. The flip side of crude oil markets going into backwardation is that, while spot oil prices have rallied, long-dated Brent and WTI prices are now lower than they were in June last year, keeping a lid on new investment. Also, while new virus strains in the UK and other locations have led to more lockdowns, fuel substitution is likely supporting oil demand too.

Still, global spare oil production capacity is near record levels with over eight million barrels of Opec+ capacity offline. “With a clear risk of new lockdowns ahead due to the new virus strains and refinery crude demand set to ebb off seasonally, we see limited upside to crude oil prices in the very near-term,” the report said.

As vaccines are rolled out, oil could overshoot too

Still, a swift recovery in global mobility could create a substantial oil deficit in 2021 as herd immunity takes hold across major economies. Many of the Covid-19 travel restrictions could be lifted in the second half (H2) of 2021.

Another big US fiscal stimulus in the spring could boost the US economy and commodity prices alike in H2 of 2021.

“Admittedly, increased mobility, more fiscal stimulus, and continued monetary easing could all combine to push oil above the $60/bbl mid-2021 target we introduced back in June 2020. So even if oil is ahead of the curve at the moment, we acknowledge prices could easily overshoot our projections heading into the summer,” the BofA Global Research report said. – TradeArabia News Service


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