Analysts Talk Oil Prices

Analysts Talk Oil Prices
Analysts at Standard Chartered and Fitch Solutions Country Risk and Industry Research share their latest views on oil prices.

The immediate prospects for oil prices appear to have deteriorated significantly in recent weeks.

That’s according to a new oil price report from Standard Chartered, in which analysts state that they think the market is now in surplus and that weakness in Asia-Pacific demand implies a risk of larger surpluses to come.

“With the price outlook darkening, the question is, how did producers react during the period of higher prices,” Standard Chartered said in its note, which was sent to Rigzone on Wednesday.

“The evidence from the first half of the oil company reporting season is that many independents held back over the past three months, preferring to increase their exposure to the upside given the relatively low hedged prices in their current portfolio,” the analysts added.

“A sample of 25 early reporters implies oil hedge books shrank for a fifth successive quarter. Swaps transacted for the next four quarters averaged above $66 per barrel, $22 per barrel higher than the average of one-year swaps in the portfolio three months ago. That average is now just over $47 per barrel, still well below current prices,” Standard Chartered analysts went on to say.

The analysts noted in the report that the latest Energy Information Administration (EIA) release was bullish according to its U.S. oil data bull-bear index, and said global mobility data was slightly stronger over the past week, but added that overall trends in the largest regions over the past two months are either flat or falling.

Fundamental Outlook Unchanged

Analysts at Fitch Solutions Country Risk and Industry Research revealed that the company’s fundamental outlook on oil prices is unchanged this quarter, in a report sent to Rigzone on Wednesday. The company forecasts that Brent crude oil will average $72 per barrel in 2021, $69 per barrel in 2022, $70 per barrel in 2023, $72 per barrel in 2024 and $74 per barrel in 2025.

“We expect the market balance to remain tight over H2 [second half of the year],” Fitch Solutions analysts stated in the report.

“Supply will rise. OPEC+ has agreed to return 400,000 barrels per day every month between August and December, while shale production has returned to low levels of growth, led by the Permian. However, in the face of renewed outbreaks of the coronavirus globally, oil demand will also continue to normalize, outpacing the growth in production,” the analysts added.

“From 2022, the outlook becomes more clouded. The economic recovery will have passed it peaks, with momentum slowing and oil demand growth decelerating. At the same time, rising volumes from the U.S., OPEC+ and, prospectively, Iran, will substantially increase the supply availably to market,” the analysts continued.

The analysts said their global supply and demand balance points to a large glut next year, which may only partly be offset by firming sentiment as the pandemic fades.

To contact the author, email andreas.exarheas@rigzone.com



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