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21.04.2021 12:42 PM
What will happen to oil this year - Bloomberg forecast

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Despite the fact that the weakening dollar is still supporting the commodity market, oil prices have been aiming for a decline since yesterday. Both benchmark brands ended Tuesday's trading in the red. So, the June contract for Brent fell by 0.7%, declining to $66.57. WTI futures also sank: May – by 1.5%, and June – by 1.2%. Thus, the price of the first was $62.44, and the second - $62.67.

This morning, the quotes continued to move down again. At the time of preparation of this article, the North Sea brand has already fallen in price compared to the previous close by 0.72%, and its counterpart in Texas has lost 0.81% of the value. Thus, the June Brent futures peaked at $66.09, and the June WTI contract slipped to $62.16 per barrel.

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The main obstacle to the growth of black gold now is the tense epidemiological situation in Japan and India, which are the largest Asian oil importers. According to estimates of commodity experts, they account for more than 16% of global demand for hydrocarbons. However, given the deterioration of the situation with coronavirus in these countries, the introduction of strict lockdowns there can significantly reduce this indicator, and in general negatively affect the global economic recovery.

Meanwhile, Bloomberg analysts called COVID-19 the main deterrent to oil growth for the current year. According to experts, the next wave of the virus, and in particular the appearance of its new strains, may again lead to a decrease in demand for black gold. Even if we assume that the pandemic will go down, this also does not inspire much optimism about a rapid recovery in demand. In view of low rates of resumption of business activity, the processes in the commodity market will also slow down, Bloomberg notes.

According to the publication's forecast, the demand for black gold this year will be 4% less than the pre-pandemic level. At the same time, analysts do not rule out the possibility that the indicator may grow to 96 million barrels per day by the end of the year. This is a much more modest figure compared to the previously announced IEA and OPEC. They hope that in the fourth quarter, oil demand can be revived to 99 million barrels per day.

Among the potential risks that may contribute to the decline in oil prices this year, Bloomberg also names a growing dollar and a number of intra-market events. The negative dynamics can be triggered by the low level of compliance with the terms of the OPEC+ deal, the return of Iranian barrels to the market in the event of a new nuclear agreement with America, as well as the rapid growth of shale oil production in the United States.

In parallel, analysts highlight several positive aspects that can act as catalysts for the oil market in 2021. First of all, the improvement of the epidemiological situation in the world due to the rapid deployment of vaccination can push the black gold to new heights. The weakening US currency and the high level of compliance with the terms of the OPEC+ deal will also be the drivers of growth. Moreover, the most obvious bullish signal for the oil market is the readiness of Saudi Arabia to support a voluntary reduction in production this year.

Bloomberg analysts estimate that on the positive factors since the beginning of the year, oil has been able to rise in price by 28%. At the same time, the upward path was uneven: with regular corrections and offensive falls. In the medium-term and long-term prospects, the movement of quotes will not change much, experts predict. In the second quarter, oil will remain in the same price range, and its average cost will be approximately $65.

As for the whole year, the average figure is projected to be slightly less – $64. Recall that last year the average oil price was $42. Currently, experts are optimistic about the restriction of production and the reduction of black gold reserves.

Аlena Ivannitskaya,
Analytical expert of InstaForex
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