Analysts at Fitch Solutions Country Risk & Industry Research (Fitch Solutions) have announced that they have made a “significant upward revision” to their oil price forecast this month.
In an oil price outlook report sent to Rigzone this week, the analysts forecasted that Brent would average $64 per barrel and $63 per barrel in 2021 and 2022, respectively. This was up from a previous forecast of $58 per barrel and $56 per barrel for 2021 and 2022, respectively.
Looking further ahead, the analysts project that Brent will average $67 per barrel in 2023, $70 per barrel in 2024, and $72 per barrel in 2025. The Bloomberg Consensus, which was also highlighted in the report and which Fitch Solutions is a contributor to, forecasts that Brent will average $56 per barrel this year, $58.2 per barrel in 2022, $60 per barrel in 2023, $62.3 per barrel in 2024, and $62 per barrel in 2025.
“Brent rallied around 20 percent in February, reflecting tighter fundamentals and ebullient market sentiment,” Fitch Solutions analysts stated in the report.
“In part, the upward revision was made to reflect unanticipated strength in the year to date. It also captures our increasingly bullish expectations the post-pandemic recovery,” the analysts added.
“Assuming that vaccinations progress as planned, that economic activity and population mobility are allowed to broadly normalize, and that governments continue to support that process, GDP growth and demand for oil should pick up pace over the coming quarters,” the analysts went on to state.
“This in turn would tighten the oil market and drive an accelerated drawdown in global inventories. In addition, we expect the reflation trade to take root as the key theme for markets in 2021, to the benefit of commodities,” the analysts continued.
On the supply side, the Fitch Solutions analysts flagged action by OPEC+ as “the key factor” in setting prices. “In light of current price movements”, the analysts said their expectation is that the group will opt for a 500,000 barrel per day increase in output for April at the next meeting on March 4, while Saudi Arabia will end its voluntary cut.
“The process of monthly adjustments has granted the group greater flexibility to match the increase in its supply with the recovery in demand,” the analysts stated in the report.
“This gives them scope to return additional volumes in the second half of the year, market conditions permitting. An accelerated unwinding of the deal could risk upsetting prices. However, assuming that the shift is well signposted and that the group maintains the option to re-increase its cut, should the fundamentals deteriorate, it is likely that such action would serve to cap the gains in Brent, rather than to trigger a relapse in the market,” the analysts added.
“Frontloading the return of these barrels would be advisable in our view, given that the bulk of the post-pandemic recovery will accrue this year and that, as the deal currently stands, the group plans to return only two million barrels per day in 2021 and a further 5.7 million barrels per day by April 2022,” the analysts continued.
To contact the author, email andreas.exarheas@rigzone.com
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