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Oil market quarterly review: 4Q 2020

Oil price forecasts

Oil price forecasts

Executive summary

  • The trajectory of energy price recovery continued smoothly in the fourth quarter of 2020, accelerating towards the end of the quarter amid positive news on the successful start of vaccination in several countries and expectations for further oil production cuts from OPEC+. In 2021, OPEC+ will continue to act as a market maker, managing oil supply in the market as it recovers.
  • Oil prices almost managed to recover from the massive collapse in early 2020. The main obstacle towards further recovery of the prices is a potential slowdown of the global program to combat the COVID pandemic. Experts see additional risks to the further growth in oil prices coming from the US shale companies increasing production amid high prices, and the potential for Iranian oil coming to the market in the case of partial lifting of the sanctions.
  • Additional reasons for the growth in oil price in the coming quarters may come from the new financial support for the economies of developed countries, as well as the changes in the US administration. The new White House team took a course to dismantle hydrocarbon dependent economy, which can put a strain on the business environment for the US shale oil companies and lead to a decrease in oil supply in the medium term. For the first time since 2016, OPEC+ may start to win back market share from the US. According to industry agencies oil production in the country will not grow in the forthcoming years, whilst the additional profits from the oil price recovery will be used to repair the deteriorated financial position of the producers.
  • Currently, a favourable background prevails in the financial markets, which positively influences quotes and forecasts. Current longterm consensus forecasts for the Brent oil price is about USD56/bbl in 2020 prices. Taking into account that long-term price levels are heavily dependent on fundamental market factors, a significant revision from our last review was not done.

For more details download the pdf below. Previous reviews are available here.