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oil and gasJanuary 4, 2021

Crude oil to hover above $60 in 2021

Brent Crude prices are set to average $50.67 a barrel in 2021, marginally down from the level at which they traded early on the last trading day of 2020, the monthly poll of analysts and economists showed.
However, Goldman Sachs sounded more bullish, predicting Brent to average $65 a barrel in 2021. The investment bank cited mass vaccinations and the limited increase in production from Opec+ as factors driving the favorable trend.
Goldman’s commodities chief Jeffrey Currie said oil inventories are also declining due to strengthening demand from Asia, which has added to the general optimism about oil prices next year.
Mamdouh Salameh, international oil economist and professor of Energy Economics at ESCP Europe Business School, UK, said he would go a step further than Goldman and project that Brent prices could average $65-$70 a barrel in 2021.
Grounding his projections on a host of bullish factors, Salameh said in a note that the global economy is projected to grow in 2021 by 5.4 per cent compared with 3.3 per cent in 2019 led by emerging markets particularly China and India.
“Second, both the global oil market fundamentals and the global economy are being invigorated by the start of mass anti-COVID vaccination around the world.
“The underinvestment in oil and gas will put upward pressure on oil prices. At the height of the pandemic, oil and gas investment estimated at $131 billion that was slated to be approved in 2020 were shelved, some indefinitely. This could push oil prices to between $80 and $100 by 2024,” Salameh said.
He said the fourth factor is the continued Opec+ production cuts until the end of the first quarter of 2021. Another reason is that “with outstanding debts approaching $1 trillion and a breakeven price of between $60 and $65 a barrel for most drillers, US shale oil could hardly expect to stage a comeback soon.”
Another factor to watch in 2021 will be the Opec+ oil production policy and whether the alliance will ease the cuts before demand can absorb the additional supply.
The market will get the first glimpse into the Opec+ thinking as early as today, the first trading day of 2021. The ministers of the group are meeting on today to discuss production from February.
“If Opec+ loosens the production cuts too quickly, there is a threat of a price setback. But if it is too cautious, a rift could arise and US shale oil production could rise again,” Commerzbank analyst Carsten Fritsch said.