[Editor’s note: This report is an excerpt from the Stratas Advisors weekly Short-Term Outlook service analysis, which covers a period of eight quarters and provides monthly forecasts for crude oil, natural gas, NGL, refined products, base petrochemicals and biofuels.]
The price of Brent crude ended the week at $63.05 after closing the previous week at $64.86. The price of WTI ended the week at $59.34 after closing the previous week of $61.45. The drop in prices came after the announcement at the end of previous week of increased production from OPEC+. The price of Brent crude has now declined by 9.45% since reaching $69.63 on March 11 of this year. The decline in the price of WTI during the same time interval has been 10.12%. Additionally, during the same period the oil traders have been reducing their long positions. Since mid-February, traders of WTI have decreased their net long positions by around 12%. Similarly, traders of Brent crude reduced their long positions, while increasing their short positions.
So now where will prices go? Will oil prices continue on the downward trend of the last several weeks? Or will oil prices rebound?
We think that oil prices will increase during the second quarter with the price of Brent crude averaging $65.75, and the price of WTI averaging around $62. Our expectations are based on the following:
- The global economy is strengthening with the recovery being led by the U.S., China and India
- Product demand is forecasted to increase in second-quarter 2021 by 1.62 million bbl/d in comparison with demand of first-quarter 2021
- Oil demand will continue to outpace oil supply during second-quarter 2021, even with the recently announced increases in OPEC+ supply
- The outlook for the refining sector will improve with increased crack spreads and higher crude runs, which will provide additional support to crude prices
There are risks associated with our outlook, most notably the following:
- COVID-related risks still represent the greatest potential for disrupting the oil markets, especially if the current vaccines prove to be ineffective against variants of the virus
- Inflation reaching levels that would result in the reversal of accommodating policies of the U.S. Federal Reserve, and subsequently, higher interest rates and a stronger U.S. dollar
- The fragile condition of the less-wealthy economies, which is underpinned by the lack of wherewithal to address COVID-19 in terms of a public health response, as well as fiscal and monetary responses
- Lagging recovery in Europe, and the inability to put forward a more proactive fiscal and monetary response
About the Author:
John E. Paise, president of Stratas Advisors, is responsible for managing the research and consulting business worldwide. Prior to joining Stratas Advisors, Paisie was a partner with PFC Energy, a strategic consultancy based in Washington, D.C., where he led a global practice focused on helping clients (including IOCs, NOC, independent oil companies and governments) to understand the future market environment and competitive landscape, set an appropriate strategic direction and implement strategic initiatives. He worked more than eight years with IBM Consulting (formerly PriceWaterhouseCoopers, PwC Consulting) as an associate partner in the strategic change practice focused on the energy sector while residing in Houston, Singapore, Beijing and London.
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