Oil prices may climb to $50/b in six months and crude stocks fall to "normal" in the 2021 third quarter if the OPEC+ coalition delays plans to add crude to the market and the demand outlook improves, Vitol CEO Russell Hardy said Nov.10.
"We do expect a recovery over the next 6 months in prices that means the absolute number heading up into the high 40s, 50s area and the curve flattening out. That's our base case," Hardy told the ADIPEC virtual form. "Things could be derailed by further demand cuts, but obviously we baked into those numbers a relatively bearish winter demand picture. But we still see that the stocks will edge lower."
Stocks, which climbed about 1.1 billion barrels in the first half of 2020, could go back to "normal" by the third quarter of next year, provided OPEC+ postpones its output hike slated for January, he said.
"We are going to make inroads into reducing those stocks but in terms of returning to normal stocks levels we are going to do that next summer depending on the supply response," he said. "A significant change of demand is unlikely through the winter period. It is a higher probability case because of the situation in the vaccine."
Oil surge
Oil futures settled sharply higher Nov. 9 on the back of improved demand outlooks following reports of a breakthrough in COVID-19 vaccine research. NYMEX December WTI settled $3.15 higher, or 8.5%, at $40.29/b, the biggest gain since May 1, and ICE January Brent rallied $2.95, or 7.5%, to $42.40/b, the biggest increase since June 1. WTI was trading 0.74% higher to $40.59/b and Brent up 1.06% to $42.85/b at 5:18 am CT (11:18 am GMT).
Pfizer and BioNTech said their COVID-19 vaccine had shown itself to be more than 90% effective in a phase 3 trial, but gave back some of these gains amid signs that the pandemic is worsening in the near term.
"Obviously what the vaccines mean is that personal transportation, personal movement, flying around the world, consuming jet fuel has a much better chance of some signs for recovery next year," Hardy said.
Biden administration
The election of Joe Biden as US president will have an impact on the oil market and prices, Hardy said. Biden's $2 trillion green agenda includes eliminating carbon emissions from the power sector by 2035 and banning fracking on federal lands.
"There is a change in mood," Hardy said. "I think that pushes up the cost of capital in the US. It gives the American oil market a more European flavor. There will be more ESG pressure. There will be more shareholder pressure over how businesses conduct themselves, over the way that businesses extract oil and gas. Obviously that's a slightly more bullish factor." Investors are increasingly demand oil producers change their environmental, social and governance practices because of climate change.
Biden's leaning toward rejoining the Iran nuclear deal that the Trump administration exited in 2018 will also affect the oil markets, Hardy said. Trump re-imposed sanctions on Iran in 2018 after leaving the Joint Comprehensive Plan of Action that was signed between Tehran, China, France, Germany, Russia, the UK, and the US in 2015.
"We don't expect it to be a first half issue," said Hardy, referring to potential return of Iranian barrels to the global oil market if the Biden administration rejoins the Iran deal. "It is more likely to be a second half issue but obviously it is very important for the oil market to digest."
