The US oil price turned negative a year ago today. Analysts now sees it rising 20% to above $75 as countries plot a return to normality
- Oil prices plunged into negative territory a year ago today, with WTI crude touching -$40 a barrel.
- Now, analysts think the US oil price could jump above $75 in the coming months.
- OPEC+ production cuts and economic reopenings have boosted the outlook, but risks remain.
A year ago today, seasoned market-watchers looked on with horror as US oil prices crashed into negative territory for the first time in history and coronavirus ravaged the global economy.Few of them could have foreseen the rapid turnaround in the fate of the global oil market. Now, Goldman Sachs analysts think WTI oil could soon shoot above $75 a barrel, from the US benchmark's price of around $63 on Tuesday.
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April 2020: Oil prices plunge into negative territory for the first timeOn April 20, 2020, oil prices became front-page news when they tumbled into negative territory for the first time ever, with WTI oil hitting -$40.
A wave of coronavirus lockdowns around the world had caused demand to dry up. Meanwhile, storage space for US oil was filling up fast. As a result, producers started paying buyers to take the black stuff off their hands."Last year proved that we hadn't seen it all in the oil world," said Bjornar Tonhaugen, head of oil
OPEC+ rides to the rescue
Saxo Bank chief commodities strategist Ole Hansen said OPEC, which is dominated by Saudi Arabia, cut its output by around 6.3 million barrels per day from the beginning of 2020 to the low point in June. He said it was currently around 3.5 million barrels lower.
Oil prices recovered sharply and hovered around $40 from July to November, when the arrival of coronavirus vaccines spurred a rally."The second phase really kicked off in early November," Hansen told Insider. He said the vaccine news "let the market start to price in or look ahead to the recovery and what impact that would have on global mobility."
WTI oil was trading at around $64 on Tuesday, but analysts at Goldman Sachs said it could go as high as $77 within 6 months, a gain of 20%. The bank thinks Brent crude could rise 19% to $80 within 6 months, from around $67 on Tuesday.The International Energy Agency last week increased its estimate of future demand once again. It has done repeatedly since the arrival of
Goldman is more bullish than most, however. Ehsan Khoman, head of emerging market research at Japanese bank MUFG, said in a note that "a vaccine-led, spring-accelerated global recovery will spur oil prices 'overshooting' in Q2."MUFG predicts WTI oil will hit $74 in the second quarter, while Brent crude will top $77. But it then expects prices to fall quite sharply as the market works out a new stable price level, with WTI oil falling to $61 in the final 3 months of the year. Morgan Stanley's base case is that WTI oil picks up to $67.50 by the third quarter before falling back to $62.50 by the end of the year.
Coronavirus and vaccine hurdles remain big risks
Yet analysts warn that there are risks to this much rosier outlook. A key one is that the coronavirus pandemic is still raging around the world, meaning a recovery in the global economy is far from assured.Another is that the vaccine rollout could become delayed. Vaccine companies such as Johnson & Johnson and AstraZeneca have already faced problems, while the rollout has been slow in Europe and elsewhere.
Saxo's Hansen said one concern for the oil market was that life after the pandemic simply requires less energy.
"When we get on the other side of the epidemic, are we going to work more from home than we did in the past?" he said. "Are we going to a fly across the world [for] business travel?"Further out, governments' renewed focus on climate change is of course the main issue for fossil fuels like oil. But Hansen said the green push is unlikely to make itself felt in the oil market in the next couple of years.
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