Anxiety over fuel price hike thickens with bullish oil price predictions

 

There are fears that the fuel price hike might be inevitable with banks and other renowned agencies predicting that the price of crude oil will rise to between $70 and $75 per barrel this year.

When Brent crude moved from $58 to over $63 per barrel, it had led to a unilateral hike in the pump price of petrol by oil marketers, especially Independent Petroleum Marketers Association of Nigeria (IPMAN). The rise in the price of petrol was blamed on the rise in the price of crude oil in the international market.

United States-based investment banks have released significantly higher oil price predictions through the year, citing rollout of COVID-19 vaccines, optimistic global economic data and non- members of the Organisation of Petroleum Exporting Countries (OPEC+) production discipline.

Goldman Sachs commodities team said global benchmark Brent oil will hit $70 a barrel in the second quarter (Q2) and $75 in the following three months.

The team’s $10 rise from their previous forecast was mainly driven by lower expected inventories and supply lagging behind demand.

Goldman said overall global demand would reach 100 million barrels a day (bpd) by late July 2021, rebounding to pre-pandemic levels while supply will still be depressed as major producers remain “highly inelastic” to the rising prices.

Morgan Stanley also raised its forecast for Brent prices. According to the U.S. bank, Brent crude prices will climb to $65 per barrel in Q2 and $70 in Q3 before it drops back to $65 in Q4.

The bank envisages that “signs of a much-improved market”, including prospects of a pick-up in demand, would support higher crude prices in the third quarter.

According to the bank, new COVID-19 cases are falling fast globally, mobility statistics are starting to improve and refineries in non-Organisation for Economic Co-operation and Development (OECD) countries are recovering to the pre-COVID production levels.

Therefore, Morgan Stanley predicts that demand is likely to improve by about four million bpd by the year-end, inventories will normalise and spare capacity should see a meaningful reduction.

Similarly, the Bank of America (BoA) forecasts that Brent will surge and average between $50 and $70 a barrel until 2026. Although short-lived, the bank predicts that oil prices could jump to $100 a barrel in the next five years.

“While it is tempting to join the bull bandwagon, our cost-of-supply data, Covid lockdowns, potential vaccination delays, and ultimately crude supply-demand balances indicate that the oil price may be dabbling in speculative excess, for now,” Rystad Energy oil markets analyst Louise Dickson told Anadolu Agency.

Dickson said Brent Front Month has not been as overbought since 2002 as it is now, which she said is usually followed by a correction.

She also pointed to the “not-so-smart money in the stock market right now chasing quick yields”.

Confirming the bullish sentiment on oil demand and the progress of vaccine inoculations, Dickson said Rystad expects 2021 oil demand to average 95.5 million bpd given the accelerated progress in vaccination production and distribution.

“We expect Europe and North America to reach a 50 per cent vaccinated population by the end of the year,” she said and warned that “vaccine distribution and a return to regular economic activity would not be homogenous globally, and inequality is generally a net drag on consumption.”

While many share the investment banks’ predictions, Dickson said Rystad diverges on such supply outlooks.

“We do not yet see evidence of supply crunch materialising in 2021, especially given that U.S. shale is again in a growth phase towards 11.7 million bpd by the end of the year, not to mention the more than 11 million bpd of spare OPEC+ capacity that can theoretically (with the exception of Iran, perhaps) be brought online along with sustained higher oil prices,” she added.