BAKU, Azerbaijan, May 6
By Leman Zeynalova – Trend:
OPEC+ is expected to further wind down its cuts over H2 2021, Trend reports citing Fitch Solutions.
“While the demand-side recovery has yet to move onto a stable footing, supply is set to grow, led by OPEC+. At its last meeting, the group opted to return 1.14mn b/d over May to July, with Saudi Arabia also set to unwind its additional 1.00mn b/d cut over the same period. Following this decision, we have revised our forecasts for the group, to factor in the return of an additional 1.0mn b/d over September to December. As of July, OPEC+ will be holding 5.76mn b/d of supply out of the market. Given our expectation that the bulk of the recovery in demand will have accrued by the end of the year, delaying the return of these barrels could create a mismatch in production and consumption and so we expect the group will to further wind down its cuts over H2. An accelerated return of cut barrels to market should help to keep a lid on prices, as demand recovers,” the company said in its latest report.
This month Fitch Solutions has increased its annual average oil price forecast for 2021, from USD64.0/bbl, to USD66.0/bbl. The forecast implies a rest of year average of around 68.0/bbl, broadly flat from spot. Strong economic data out of China and the US and rising vaccination rates give cause for optimism. However, Covid-19 related risks continue to abound, most recently evidenced by the outbreak in India. In our view, a combination of easing supply constraints and lingering demand-side uncertainties will weigh heavily on further price growth this year.
“After a period of rangebound trading, Brent has broken higher and is again moving to test resistance at around USD70.0/bbl. A sustained break above this level would likely trigger an upgrade to our forecast, signalling rising conviction in the rally. However, it is our belief that Brent will fail to break resistance under current market conditions. There have been some signs of deterioration in the health of the market of late, including narrowing backwardation in Brent and underperformance of physically versus financially-settled contracts.
In our view, the market is likely underestimating the risks related to future outbreaks of the coronavirus, the rise of new, more transmissible variants and the pace of the global vaccine roll out. Should Brent fail to close above USD70.0/bbl, the spiralling epidemic in India and outbreaks among other key Asian consumers could be the trigger for a partial relapse in prices,” reads the report.
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