Oil price could recover to US$75 in 2 years

Although Covid-19 will continue to exert pressure on global oil demand until 2025, a gradual upcycle recovery could push prices up to US$90 per barrel

by SHAZNI ONG / pic by BLOOMBERG

OIL price could recover to a base-case scenario of US$75 (RM308.25) per barrel in 2022 as global oil production and demand are expected to gradually improve, observed analysts.

AmInvestment Bank Bhd analyst Alex Goh said although the Covid-19 pandemic will continue to exert pressure on global oil demand until 2025 with an estimated 900,000 barrels per day (bpd) below pre-Covid 19 levels, a gradual upcycle recovery could push prices up to US$90 per barrel.

Oil production fell to 24 million barrels in April this year.

“However, a more volatile upcycle could mean over-US$90 per barrel prices by mid-2022, followed by a more drastic collapse to US$30 per barrel in 2024 from potential over investments,

“Global daily oil demand is projected to decline by 18 million barrels in 2020 although global daily road traffic is showing signs of a pick-up in September, supported by China and other parts of Asia returning to near normality,” he said in a note last Friday after attending the Rystad Energy AS’ 2020 APAC Virtual Annual Summit on Thursday.

Goh added that Rystad warned of a second wave scenario that could cut an additional four million bpd production towards the end of the year.

DailyFX analyst Rich Dvorak said crude oil has clawed back recent losses over the last three trading sessions.

“Oil price action now trades about 10% higher this week, but the commodity is still lower on a month-to-date basis. A recovery in market sentiment, indicated by stagnating selling pressure across major stock indices, likely helped provide buoyancy to crude oil,” he said.

Dvorak noted that speculation headed into the latest OPEC+ update might boost petroleum prices too.

“Top energy ministers comprising the Joint Ministerial Monitoring Committee (JMMC) gathered to discuss the latest oil market outlook and review production quota compliance.

“Crude oil was jawboned higher with commentary stating ‘further necessary measures may be needed’ in light of slumping demand as the global economic recovery stalls,” he said.

Saudi Prince Abdulaziz Salman Al-Saud’s remarks of “I will make this market jumpy” might have scared oil shorts with weak hands as the energy minister doubled down on his remarks with additional expletives.

“Further, the JMMC suggested to OPEC officials that the compensation period for overproduction be extended through year-end could encourage more conformity among the oil cartel and facilitate market stability,” Dvorak added.

Meanwhile, Goh said US shale production, which dropped by 2.7 million bpd month-on-month (MoM) in April 2020, could continue to decline under a US$40–US$45 per barrel price regime until growth begins to emerge in late 2021.

“While OPEC+ may recover to pre-Covid-19 levels by mid-2022, the output from the rest of the oil producing nations, excluding the Middle East and the US, is expected to gradually slide in 2020-2025 due to lower field sanctioning in 2020-2021,” he said.

Goh noted that on year-to-date, Brent crude oil prices have averaged US$42 per barrel with the current spot price also at US$41 per barrel from the year-low of US$14 per barrel on April 22 2020.

“This is supported by US crude oil inventories declining by 8% to 496 million barrels currently from the all-time high of 541 million barrels in June.

AmInvestment maintains a crude oil price forecast of US$40–US$45 per barrel for 2020, in line with Petroliam Nasional Bhd’s near-term view, and US$45–US$50 per barrel for 2021.

“For comparison, the Energy Information Administration’s short-term outlook projects crude oil price at US$41 per barrel for 2020 and US$50 per barrel for 2021,” Goh said.