Global oil prices will likely strengthen over the coming 18 months to hover around $45-55/b if economies continue to reopen and OPEC+ follows through on efforts to drain oil stocks which surged during the peak of pandemic lockdowns, BP's former chief financial officer Brian Gilvary said.
Speaking a week after retiring from a 34-year career at the oil major, Gilvary said oil prices could spike higher, however, if oil demand continues to bounce back from crushing lows in April.
Despite fears of a snapback to lockdowns due to second-wave infections, implied driving activity -- a proxy for gasoline and diesel demand -- has now recovered to well above pre-crisis levels in a number of key markets such as the US and Europe.
"I don't see a massive upside case for prices but you might get short-term spikes," Gilvary told S&P Global Platts in an interview July 9.
"I think we have to see the big overhang in stocks clear out now before we get back to numbers up around $45 - 55/b which I think depends on what the next wave of COVID looks like," he said.
Global oil inventories have swollen by more than 1 billion barrels since the start of the COVID-19 pandemic, a level that is expected to drag on the oil price recovery.
Brent crude has remained mostly rangebound around $40/b since early June after rebounding from near two-decade lows of under $16/b on April 22. As stay-at-home orders continue to ease, OPEC and its key allies also appear to be sticking to a landmark deal of slashing almost 10 million b/d in supply from the oil market.
New normal
In addition to record global oil stock levels, Gilvary noted that the world can also count on a bigger supply buffer from OPEC, which -- even before the current output cuts -- was sitting on spare capacity of over 3 million b/d.
"All roads lead back to OPEC as a clearing system if they wish to clear the price at a certain level," he said.
"As things get back to a new normality, I think there'll be a bit of a juxtaposition perhaps between the OPEC states that want the price slightly higher in terms of balancing their balance sheets and the other members of OPEC+ not wanting to see US onshore oil production grow back up to 13 million b/d."
A number of oil market watchers have raised their near-term oil price forecasts in recent weeks to reflect a more supportive oil market outlook. At the end of June, Citigroup said it sees Brent recovering over the coming year to top $60/b, driven by OPEC+ discipline on output cuts and the near-term loss of US shale oil.
BofA Securities also raised its oil price forecast for the next two years to $50 and $55/b respectively on signs of faster-than-expected global oil demand recovery, massive industry spending cuts and strong OPEC+ adherence to curbing crude supplies.
S&P Global Platts Analytics on June 28 predicted that Dated Brent would rise gradually to $50/b by the end-2021 as OPEC+ brings on enough supply to manage prices while not over-stimulating non-OPEC supply.
