MUFG: Oil to Average US$68 in 2021

Brent and WTI will average US$68 and US$65 per barrel (/b) respectively in 2021, said Mitsubishi UFJ Financial Group (MUFG), a Japanese bank holding and financial services company in its latest Oil Market Weekly. “For 2022, we continue to forecast Brent averaging US$58/b (WTI averaging US$55/b), with lower prices next year being driven by (i) a lower carbon future accelerating the decline in oil intensity of GDP growth and (ii) an ongoing falling cost structure of the oil industry,” the report said. “Succinctly put, we are cyclically positive and expect an ‘overshoot’ in Q2 (Brent US$77/b; WTI US$74/b), but the medium-term outlook for oil is not rosy.”

The sheer magnitude and intensity of the recent spread of Covid-19 cases and fatalities has been dizzying and alarming markets. Juxtaposed with this gloomy picture, is the “vaccine, stimulus, reopening” pulse surrounding the global economy, which has kept Brent crude prices in-check oscillating ~US$65/b.

While the 94-96 million b/d range of global oil demand over the past six months was initially a positive surprise through the large wave of Covid-19 infections over the winter, it has become a speed bump to the recovery in oil prices so far this spring as demand levels have flattened in India, Latin America, and parts of Europe.

“Despite this, we expect a significant ramp-up in global oil demand in the next six months, rising precipitously from 96.3 million b/d currently to 97.6 million b/d by June and returning back to the pre-virus run-rate of +100 million b/d by August (100.2 million b/d), with vaccine inoculation accelerating in North America and Europe, and the expected easing of international travel restrictions in the coming weeks unleashing pent-up transportation demand. This is central to our thesis as to why we expect oil prices to “overshoot” in Q2 (Brent US$77/b) and remaining in the 70s range until Q4,” the MUFG report said.