Abu Dhabi: Emirates NBD has raised its price outlook for Brent crude to $42.55 for 2020, with the firm also raising its forecast for West Texas Intermediate (WTI) to $37.70 with demand set to recover throughout the year.
“After an enormous quarterly decline of more than 12 million barrels per day (bpd) in Q2 (second quarter) oil demand will recover over the remainder of 2020 with growth of more than 13 million bpd in Q3 and an additional 2 million bpd in Q4,” said Edward Bell, commodity analyst at Emirates NBD.
“As economic recovery takes hold in many markets oil demand will track alongside it, although the gains across geographies and products are unlikely to be evenly distributed,” he added,
“Our oil price assumptions for the rest of 2020 are now higher but we don’t expect a substantial rally beyond current levels. We now assume Brent at an average of $42/barrel in Q2 and $44/b in Q4, taking the annual average of $42.55/b, a drop of 34% year-on-year.”
Oil markets will face two main challenges with the potential of a second pandemic wave and Opec+ producers failing to meet their production cut quotas, which could dent prices.
“For Opec+ going forward the challenge will be maintaining compliance so that any additional production does not overwhelm the tentative recovery in consumption,” Bell said.
“Downside risks include coronavirus cases getting out of control in key markets, and forcing a lockdown of economic activity again,” he added.
Oil prices on Wednesday were trading in the low $40 range, with oil markets going through a relative period of stability over the last few weeks on Opec+ production cuts and global economies reopening.
“The oil price is still stuck, nearly flat at the low 40s, anchored there until it is given a convincing reason to move in either direction,” said Louise Dickson, Oil Markets analyst at Rystad Energy.
“COVID-19 cases in the US is of course another reason for concern, the critical situation in the country, and other nations, is what keeps prices below $45,” Dickson added.
“If crude stocks are growing now, while restrictions are loose, traders worry about what will happen to demand in the case serious lockdowns come back again.”