Supply curbs, uncertain demand to keep oil rangebound above US$40

LONDON: Oil prices will see little change this year and a modest uptick in 2021 as output cuts take effect, with the demand picture clouded in uncertainty due to the coronavirus pandemic, a Reuters poll showed on Tuesday.

The survey of 43 analysts and economists forecast benchmark Brent crude to average US$42.75 a barrel in 2020, up from July’s US$41.50 consensus and compared with an average price of US$42.60 so far this year. Brent is expected to average US$50.45 in 2021.

The 2020 US crude price outlook rose to US$38.82 per barrel from July’s US$37.51.

Global demand, meanwhile, was seen contracting more steeply this year, by between 8-10 million bpd versus July’s 7.2-8.5 million bpd consensus.

“The market’s looking for a catalyst to break out of its recent range,” said Harry Tchilinguirian, head of commodity research, BNP Paribas.

“On the bearish side, this could be a degradation of Opec+ discipline as prices begin to rise, or more severe economic setback … On the bullish side, a positive outcome in Phase III Covid-19 vaccine trials that will re-shape expectations around the path of a global economic recovery.”

The Organisation of the Petroleum Exporting Countries and its allies, or ‘Opec+’, have urged nations producing oil above the agreed quotas to deepen cuts in August and September.

Its current policy calls for a 7.7 million barrels per day (bpd) cut.

“Opec+ will likely support a floor at US$40, but plateauing demand recovery and concerns of a Covid-19 second wave will make price gains difficult,” Jefferies analyst Jason Gammel said.

“Declining US production could be supportive into year-end.”

The International Energy Agency this month cut its 2020 demand forecast by 140,000 bpd to 91.9 million bpd and, with the pandemic throttling air travel, predicted consumption in 2021 will be slightly lower than it was in 2019.

“Air traffic is likely to suffer for longer,” said Norbert Ruecker of Julius Baer.