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Oil prices to follow long-term trend of $60/bbl beyond 2025

Oil&Gas Materials 26 February 2021 11:29
Oil prices to follow long-term trend of $60/bbl beyond 2025

BAKU, Azerbaijan, Feb.26

By Leman Zeynalova – Trend:

The oil price has been hit hard by COVID-19 but over the longer-term, the expectation is that an average level of around USD60/bbl should be achievable, as oversupply is driven out of the market by lower prices and demand starts to recover, Trend reports citing the Gas Exporting Countries Forum (GECF).

This forecast is in line with the views of many of the key energy companies, and the assumption is that OPEC can retain its role as a global swing producer. The pandemic has triggered a fundamental attack on an oil price, which was already declining due to geopolitical tensions and a general slowdown in the global economy.

The price of Brent crude oil, a global benchmark, fell from USD66/bbl on the first trading day of 2020 to USD16/bbl on April 22 (intraday quote), a decline of 76 percent in less than four months, as COVID-19 induced a collapse in global oil demand and concerns grew over high levels of storage capacity. Later on, the combined effects of the OPEC+ alliance and an easing of pandemic-related restrictions globally supported the oil price, which climbed to an average of USD41/bbl for the first ten months of 2020.

Based on futures prices, the average annual Brent crude oil price for 2020 will equal USD42/bbl, a contraction of 32 percent from the 2019 average number, and USD47/bbl in 2021. On the demand side, the pandemic outbreak pushed oil prices down following a steep decline in travel due to travel restrictions, along with a sharp decline in liquid fuels demand in 1H 2020. In the medium-term, we anticipate the crude oil market to stabilize and assume beyond 2025 that it will follow the long-term trend price of USD60/bbl, reflecting the COVID-19 effect and also taking into account efficiency savings.

Crude oil prices struggle to regain 2019 levels – weaker long-term demand keeps prices USD10/bbl lower compared to last year’s Outlook. The Brent crude oil price assumption for the long-term is in line with its historical average price over the thirty years, from 1990 to 2019, which was USD60/bbl. A challenged upstream investment environment in the oil industry will come to a halt due primarily to a slump in oil demand as an outcome of the pandemic coupled with persisting trade tensions between China and the US. It is set to significantly slow down over the medium-term. With the slowdown in economic growth spreading to developing economies, oil demand in these countries is set to decelerate significantly.

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Follow the author on Twitter: @Lyaman_Zeyn

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