Progress in vaccine development and expectations that OPEC+ will decide in less than two weeks to roll over the current cuts for three months instead of easing them from January 2021 give bulls hopes that the oil market will regain some semblance of a balance next year, pushing prices higher.
Currently, the general consensus among analysts and agencies is that oil prices will indeed see an upside in 2021 as above-average inventories will draw down with a global economic and oil demand recovery.
Several bullish signals in recent weeks have made oil market participants and analysts more optimistic about the oil market next year, despite the current second wave of COVID-19 infections sweeping across Europe and the world’s biggest petroleum consumer, the United States.
First, crude oil and petroleum inventories in the U.S. are still above five-year average levels, but they have dropped from their peaks earlier this year, according to estimates from Reuters market analyst John Kemp based on EIA data.
Next, oil demand in Asia has visibly strengthened in recent weeks, giving the oil market hope that at least in one region, demand is strong in the fourth quarter.
Then, hopes of an effective vaccine receiving FDA approval soon also instill hopes that life could return to some form of normality at some point in 2021.
Related: Something Highly Unusual Just Happened To Chinese Crude Stockpiles All these factors resulted this week in the shallowest contango in the front-month and six-month spread in the Brent Crude futures market since July, suggesting that market participants now expect vaccines and economic recovery next year to help market rebalancing, which would push oil prices higher.
Current expectations about oil prices point to gains, especially in the latter half of 2021.
The EIA expects in its November Short-Term Energy Outlook (STEO) that as global oil demand rises, inventory draws in 2021 will cause some upward oil price pressures, and Brent is expected to average $47 a barrel next year, up from $44 per barrel early on Friday.
The latest monthly Reuters poll of analysts, before the vaccine progress announcements, expected Brent prices to average $49.76 per barrel in 2021, down compared to $50.41 expected in the previous survey.
However, risks to oil prices are likely still skewed to the downside, as surging COVID cases in the U.S. and Europe are prompting renewed lockdowns, curfews, mask mandates, and restrictions, which would weigh on economic activity and transportation demand in the near term. The uncertainty about how bad oil demand will be hit and how fast developed economies and demand would recover from this second wave will continue to pressure prices to the downside, at least early next year. The vaccine impact on oil demand and spot oil prices is not expected to manifest in the first half of 2021, the International Energy Agency (IEA) said last week.
Moreover, in the coming week, fuel demand in the U.S….
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