OPEC+ output deal, COVID-19 vaccine to push oil higher in 2021: Analysts

Brent crude prices could push beyond $55 per barrel (bbl) in 2021 with two developing factors acting as long-term support for demand recovery, market experts told Argaam.

Most analysts concur that the Organization of Petroleum Exporting Countries and its allies, together known as OPEC+, will postpone their plans to ease production cuts starting January next year in order to maintain supply-demand balance.

In addition, the recent promising results from coronavirus vaccine trials bolster demand outlook in line with a potential recovery in the travel sector.

“The post-vaccine world will restore some of the oil demand that was erased in 2020,” said Elliot Hentov, Head of Policy Research (Global Macro) at State Street Global Advisors. “But not fully given some permanent changes in consumer and business behavior.”

Oil prices continue to exhibit some upside risk and Brent crude should return and stay above $50/bbl by end of 2021, Hentov said.

Brent crude gained more than 8% in the week ending Nov. 13, after drug manufacturers Pfizer and BioNTech said an experimental COVID-19 vaccine was more than 90% effective based on initial trial results.

On Nov. 16, biotechnology firm Moderna said its experimental COVID-19 vaccine was 94.5% effective in preventing infection, based on interim late-stage data.

“News of a vaccine boosted oil prices. But with any vaccine, it is going to be several months before it reaches a critical mass, which means that oil demand will probably only begin to recover in earnest starting in mid-2021,” James O'Rourke, economist in the commodities team of Capital Economics said.

“We think that Brent oil prices will reach around $55 per barrel by end-2021,” he added.

Meanwhile, analysts agree that OPEC+ will maintain the output cuts of 7.7 million barrels per day (bpd) for longer when it meets on Nov. 30 and Dec. 1, 2020.

Earlier this month, Saudi Arabia’s Energy Minister Prince Abdulaziz bin Salman said the agreement to reduce oil production may be extended to the end of 2022.

Read: Oil cut deal could be extended to 2022-end, says Saudi energy minister

At present, the OPEC+ is scheduled to ease output-cut by 2 million bpd in January.

“There is a good possibility that OPEC+ may delay the planned easing of production cuts in January, given the current situation with the pandemic, and related lockdowns, that offset optimism about a strong recovery in demand in 2021,” Fawad Razaqzada, market analyst at ThinkMarkets, said.

If the group holds the curbs at the current level, then Brent price is expected to jump, possibly reaching $50 in early 2021, Razaqzada said.

He estimates that Brent crude could be trading around $60/bbl by the end of 2021, in case of a successful and widely distributed COVID-19 vaccine.

“Saudi Arabia, before the Pfizer announcement and subsequent oil price increase, wanted to push the group to delay the planned OPEC+ output increase by a quarter. We think Saudi Arabia would still remain cautious regarding demand in the short run and stick to that position,” Jean Claus, CEO (Middle East) at Euler Hermes, said.

For the time being, Euler Hermes maintains a conservative forecast range of $46 to $48/bbl for Brent crude on average in 2021.

Write to Nadeshda Zareen at nadeshda.zareen@argaam.com