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During October oil prices slid at the largest monthly level since March (Brent -8.5% MoM; WTI -11.0% MoM) owing to rising virus cases and higher Libyan supply. MUFG Bank’s bullish oil price thesis remains intact but the next leg up will require time and patience.

Key quotes

“There remains no case for above $50/b (yet), but also no case lower at $30/b. While we had cautioned that a risk-off event amidst a resurging virus wave and higher Libyan supply is possible, our constructive bullish oil price conviction remains intact. 

“First, the market has remained in deficit since June despite the virus resurgence. Second, fundamentals are skewed to a swifter rebalancing given the rising likelihood of vaccine approvals, discipline by OPEC+ and US shale producers and oil majors’ capex still at low levels by historical standards with an increasing shift towards incorporating ESG metrics and with it the associated corporate spending re-allocation away from fossil fuels. 

“We continue to look for Brent and WTI to end-2020 at $48/b and $45/b, respectively, although we acknowledge downside risks. More broadly, given oil inventories remain elevated, the next leg up in oil prices will require time and patience – whilst $20/b to $40-45/b between April to June was a sprint, $40-45/b to $60/b will be a marathon.”