According to analysts from Danske Bank, in the short term, a resurgence of COVID-19 cases in Europe and the US will continue to weigh on oil demand as it triggers new lockdowns and restrictions on travel and transportation. Over the medium term, they see the latest positive news on the vaccine provides a light at the end of the tunnel for the oil market.
Key Quotes:
“A number of supply issues are still lingering. OPEC+ has opened up the possibility of extending output cuts. However, a dispute over the lack of compliance remains an issue for the cartel. Drilling activity has slowly started to increase in US shale oil. Inventory levels still have some way to go before they are normalised. On a medium- to long-term horizon, current low investment activity now may result in supply shortages.”
“Positive news on the COVID-19 vaccine front has brightened the outlook for oil prices. However, on the way to a rollout of vaccines and full reopening of economies, the oil market is likely to have to endure new lockdowns and work through a glut of supplies from elevated inventories, eventual normalisation of OPEC+ production levels and slowly rising shale oil output. Thus, we expect oil prices to stay range-bound for the rest of 2020. We keep our forecasts for Brent and look for Brent to average USD40/bbl in Q4, USD45/bbl in Q1 and Q2 21, USD50/bbl in Q3 21 and USD60/bbl in Q4 21.”
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