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Higher oil prices to be dampened by huge amount of oil output capacity

Oil&Gas Materials 25 January 2021 10:51
Higher oil prices to be dampened by huge amount of oil output capacity

BAKU, Azerbaijan, Jan.25

By Leman Zeynalova – Trend:

In 2020, oil prices only partially recovered from their virus-related collapse as demand remained weak, Trend reports citing the UK-based Capital Economic research and consulting company.

“Turning to this year, we think the outlook for oil prices is more positive. Although virus-related restrictions will be in place across much of the world in the first half of the year, transport consumption appears likely to hold up better than in the first wave of restrictions in 2020. And we anticipate a surge in demand in the second half of the year as the rollout of vaccines enables economies to open up and travel and hospitality to revive.

However, the potential for higher oil prices will be dampened by the huge amount of oil output capacity that is currently offline and which could quickly be brought back on stream at the right price. OPEC+ members are making production cuts of over 7m bpd at the time of writing. What’s more, US output is now around 2m bpd less than its recent peak of 13.1m bpd in March 2020,” the company said in its latest report.

The company’s forecasts assume a revival in US output and some slippage in OPEC+ compliance, but the oil market should still be in a small deficit. “As a result, we expect the price of Brent to rise to $60 per barrel by end-2021.”

Capital Economics expects Brent prices to stand at $52/bbl in Q1 2021, $54/bbl in Q2, $56/bbl in Q3 and $59/bbl in Q4.

As for 2022, Brent prices are forecast at $59/bbl in Q1 and $58/bbl in Q2.

West Texas Intermediate (WTI) prices are expected to be equal to $50/bbl in Q1, $52/bbl in Q2, $54/bbl in Q3 and $57/bbl in Q4. In 2022, these figures are forecast at $58/bbl in Q1 and $57/bbl in Q2.

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Follow the author on Twitter: @Lyaman_Zeyn

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