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Strategists at OCBC Bank see a low possibility of oil returning to $100. Instead, they expect the black gold to peak at $80 – possibly by end-2021 –   as supply from OPEC+ is set to return in earnest beginning 2022.

Global supply balance to flip back into a mild surplus by 2022

“July 2021 will see the last of OPEC+’s plans to ease its pandemic supply curbs, with production to increase a total of 850kbpd. Despite that increase, the total output level of OPEC+ is still 6mbpd below its Oct’18 baseline.”

“Our base case is for global supply to increase by 2mbpd by end 2022, of which largely from OPEC+ and Iran. Should Iran’s oil embargo be lifted in the next 18 months, we expect 2mbpd of Iranian crude to return to international waters, in which case we expect OPEC+ to keep constant its 6mbpd output cut through 2022.”

“We estimate that global supply balance of crude oil will return to surplus beginning Q1 2022 and likely to remain so through the rest of next year.”

“We see Brent peaking at $80 by end 2021, but the flip in the global supply balance from deficit to surplus next year means Brent may begin its retracement next year towards its long-term average price of $65.”