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.”