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The ongoing vaccine rollout has brightened the outlook for oil prices. However, on the way to a rollout of vaccines and full reopening of economies, strategists at Danske Bank believe the oil market will have to endure lengthy lockdowns and work through a glut of supplies from elevated inventories, eventual normalisation of OPEC+ production levels and slowly rising shale oil output. 

Key quotes

“Short-term, a resurgence in infections in Europe and the US (and potentially elsewhere) will continue to weigh on oil demand as it triggers new lockdowns and restrictions on travel and transportation. It seems that policymakers are keen on keeping tight restrictions for the next 2-3M.” 

“Medium-term, the vaccine rollout provides a light at the end of the tunnel for the oil market and a basis for a full reopening in Q2 and Q3.”

“OPEC+, led by Saudi Arabia, is keeping output tight to avoid a near-term growing surplus on the oil market balance. OPEC+ is due to meet again on 4 March to reassess its stance. Drilling activity has slowly started to increase for US shale oil. Inventory levels still have some way to go before they are normalised. On a medium to long-term horizon, the current low investment activity may result in supply shortages.”

“We expect oil prices to stay range bound for the rest of year. We keep our forecasts for Brent and look for Brent to average $55/bbl in Q1 and Q2 (revised up from $45/bbl) and Q2 next year, $60/bbl in Q3 (revised up from $55/bbl) and $60/bbl in Q4 (unchanged). We forecast Brent will average $65/bbl in 2022.”