Oil prices might reach $70 per barrel in 2021 amid falling investments – experts

TASS Russian News Agency | Aug 13, 2020 at 9:55 PM

MOSCOW, August 13. /TASS/. A sharp decline of investments in oil exploration and production amid a collapse in prices this spring could cause oil prices to rise to pre-crisis levels in 2021, according to Commissioner Ryan Sitton from Texas Railroad Commission. Analysts interviewed by TASS confirmed that if demand continues to recover at the same pace and there will be no new series of lockdowns due to the coronavirus pandemic, then the supply shortage will push oil prices up.

For the second week in a row, the price of Brent crude oil has been holding above $45 per barrel, while WTI oil also rose above $42 per barrel. "Oil will hit $70/bbl in 2021," Sitton tweeted on Wednesday. This spring, he became known as a supporter of regulated oil production cuts in the United States and cooperation with OPEC+.

A rise in prices to pre-crisis levels of $70 per barrel is possible, according to Dmitry Marinchenko, Director for natural resources and commodities group at Fitch. However, such scenario would be realistic if the demand recovery turns out to be stable, that is, the "second wave" does not materialize. "It is more likely that with a steady recovery in demand, the OPEC+ countries will decide to complete the deal ahead of schedule in order to avoid a strong deficit in the market and prevent strong growth in the shale oil production," the expert believes. Fitch has not changed its forecast for the oil price for 2021 - an average of $45 per barrel.

According to analyst at the Bank of America Merrill Lynch Karen Kostanyan, this spring we saw a collapse of capital expenditures in the oil industry, they fell by 30-40% and now no one is investing in oil. Thus, that there is a risk of higher prices rather than lower ones, Kostanyan added. As for the US upstream sector, he also sees no signs of an early recovery in drilling amid strong cost cuts and bankruptcies.

At the same time, if fears about a new wave of quarantine measures come true in the fall, then the rise in oil prices can be forgotten, Kostanyan noted. Earlier, the IEA and OPEC downgraded the forecast for a decline in global oil demand in 2020 due to the high risks associated with the coronavirus pandemic.