Can oil hold above $ 80 a barrel?
The Brent price yesterday rose by $ 1.7 to $ 79.9 per barrel, then dropped to $ 79.3 per barrel). However, demand still exceeds supply, so there is a significant deficit in the market. As a result, the price at $ 79.38 per barrel, $ 1.29 higher than the previous level.
Note that this year oil quotes, unlike the prices of some other commodities, are not subject to uncontrolled speculative jumps. In our opinion, in the 2nd half of 2020, they are closely correlated with constantly improving market fundamentals, reflecting the balance of supply and demand.
The only significant fundamental catalyst for the market at the end of Q3 2021 was Hurricane Ida, which hit the American Gulf Coast in late August and created conditions for the price of Brent to rise to $ 80 per barrel. However, due to the effects of the hurricane, part of the refinery’s capacity will be idle until the end of October, and production will not fully resume until the end of Q1 2022. Thus, we expect that we will not be producing 55-60 million barrels of oil in the United States due to this, and will not be processed 50-55 million barrels of oil
Another critical fundamental premise is gas price dynamics. They have grown so much that the transition from gas to liquid fuels has become economically viable wherever this opportunity exists. Nonetheless, we still expect oil demand to rise by 0.5mn (in line with the lower end of the consensus) due to the switch to liquid fuels.
The transition to the use of petroleum products instead of gas is technically not possible everywhere;
therefore, in our opinion, more optimistic forecasts for the demand for liquid fuels (assuming an increase of 1 million barrels per day) can only be realized if the winter is colder than usual.
Note that if gas prices fall significantly (for example, due to a warm winter), the demand for liquid fuels will decrease. In our latest daily and weekly reviews, we noted a high probability of the Brent quotes rising in late September – early October to $ 80 per barrel and above because oil has broken through key technical resistance levels.
Considering solid fundamentals (including expected strong demand from China in Q4 2021), we believe that Brent could hold above $ 80 / bbl in Q4 2021, probably within the range of $ 80-85 / bbl, if there is no sharp deterioration in macroeconomic sentiment. Therefore, our new forecast for an average Brent price for Q4 2021 is $ 83 / bbl, which is in line optimistic scenario in our overall forecast for 2021, published in Q1 2021. The new forecast will be in the forthcoming Strategic Companion quarterly review.
Today, investors await the OPEC World Oil Outlook (OPEC World Oil Outlook) with forecasts and detailed statistics on oil production, refining, supply, and demand. In addition, the US is to publish the consumer confidence index for September and the weekly data of the American Petroleum Institute (API) on the commodity stocks of hydrocarbons in the US. Therefore, we believe the Brent price will likely exceed $ 80 / bbl today as the API data is likely to be favorable.
