The faltering oil demand recovery and the lack of a COVID-19 vaccine will likely push the oil price recovery to $50 a barrel into 2021, as inventories continue to pile up in 2020 amid weak refinery margins and demand, according to Saxo Bank.
“Crude oil has been trading in a fairly stable pattern in the low $40s since June, however, we are seeing evidence in data from the physical market that there are risks emerging. Weak refinery margins, caused primarily by the excess of unwanted diesel and jet fuel, are leading to storage facilities rapidly filling up,” Ole Hansen, Head of Commodity Strategy at Saxo Bank, said on an online briefing, as carried by Times of Oman.
Despite the fact that oil prices managed to find support on Tuesday after the 15-percent correction of the past week, Saxo Bank doesn’t see too much upside potential for oil prices in the near term as fundamentals remain weak.
The correction actually helped prices drop more in line with the fundamentals in the currently fragile outlook for the oil market, Hansen wrote in a post on Wednesday.
“As the pandemic continue to slow the recovery in fuel demand, the upside potential in our opinion is likely to remain limited over the coming months. With that in mind and given the risk of increased production from Libya, we see Brent crude oil settling into a new lower range around $40/b before eventually moving higher into year end and 2021,” he said.
In 2021, oil prices could hit $60 a barrel, according to Citigroup and Goldman Sachs.
Oil prices are set to rise to $60 a barrel by the end of next year as the oversupply will have been drawn down by then, according to Citigroup, which is bullish on oil.
Goldman Sachs expects Brent Crude to reach $65 a barrel in the third quarter of 2021, although it could end the year lower, at $58 a barrel. Goldman also sees WTI Crude to rally to $55.88 a barrel by the third quarter of next year, up from $51.38 a barrel in earlier forecasts.