Oil Price Forecast 2021: Oil's Fundamental Reckoning
To say that the 2020 Atlantic hurricane season has been an active one would be a gross understatement.
In fact, there have been so many named storms this year that they’ve run through the English alphabet and moved on to the Greek alphabet.
Of course, I mention this as Tropical Storm Beta dumps a massive amount of rain along the Texas coast.
Fortunately for those oil platforms in the Gulf of Mexico, the shut-ins were minimal — just 497,000 barrels per day that will be back up and running in no time.
Yet it wasn’t the foul weather that has analysts relatively bullish over oil’s future.
For that, we simply glance at the fundamentals.
Make no mistake, the supply-and-demand picture is (and always has been) the primary driver for crude prices.
That dynamic has analysts bullish for 2021.
Is it time we join their enthusiasm?
I’ll let you decide...
Oil Forecast 2021: Humming the OPEC+ and COVID Blues
Looking around, we see fewer and fewer gloomy forecasts emerging.
Russia’s oil minister’s recent announcement that he believed global oil consumption would return to pre-COVID levels by next June isn’t the only rosy projection out there.
His OPEC+ friends may not be as optimistic; the group agreed that the production cut target should stay at 7.7 million barrels per day.
Assuming we can take OPEC+ at its word (which I know we are loathe to do given its comical production quotas in the past), at the very least we can be hopeful considering OPEC+ achieved a compliance rate of 101% in August.
When the bears begin pointing at Libyan oil output as a beacon of hope to boost supply, we can’t help but take that prospect with a grain of salt.
How many governments are claiming power in Libya’s capital right now? Libyan output has been incredibly unreliable ever since the country was thrust into civil war years ago. But don’t worry, renegade Gen. and Field Marshal Khalifa Haftar informed us he’s lifting an eight-month blockade on Libya’s port.
Oh, well then, consider my mind at ease.
Even with more potential addition of light crude out of Libya, others in the OPEC+ alliance are struggling to tread water.
Mexico recently cut its production targets for 2021, thanks to a steeper-than-expected decline in Maloob, the country’s largest offshore field.
This is just another notch in a long series of setbacks for Pemex, unless any of you happen to forget the lessons unlearned after Cantarell’s demise.
At one point, the Cantarell Field was one of the largest oil fields in the world, and now it's a shell of its former self — an aging super-giant field on its deathbed.
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Although the short term doesn’t give us bullish tingles, the horizon brightens in 2021.
We’re not the only ones who think so, either.
Both Citigroup and Goldman Sachs both see prices recovering in 2021, with the latter calling for prices to top $65 per barrel by next September.
The Energy Information Administration (EIA) remains skeptical. In its latest Short-Term Energy Outlook, the EIA projects WTI crude prices to average $45.07 per barrel next year.
Still, the EIA also expects global consumption to average 99.6 million barrels per day, just barely above projected demand of 99.34 million barrels per day.
I have a feeling the EIA will be breaking out the revision pen before too long… depending on how dire our supply situation becomes.
Demand growth has always hinged on how the world transitions back to “normal.” Even after we’re told that a second wave of COVID is imminent, it’s hard not to see consumption levels rising.
For us, it all comes down to supply.
We’ve talked recently about the Great Oil Reset that is taking place before our very eyes. Yet it’s not OPEC+ that has captured our attention but rather the tight oil fields in the United States.
Long before COVID, social distancing, complete economic shutdowns, and face masks became part of everyday life in the U.S., our tight oil was the single largest contributor to global output for more than a decade.
No, dear reader, we don’t need a massive consumption spike above pre-COVID levels to be bullish on oil prices.
Oil’s biggest story in 2021 will be whether or not the U.S. exploration-and-production sector will recover in time to offset the steep decline rates that our tight oil wells experience.
One thing we can count on, however, is that a small group of investors will take advantage of the bottom.
Why not join their fortune?
You see, despite crude still being stuck around $40 per barrel, you can capitalize on the hidden gems buried deep in the U.S. oil industry.
Let me show you a company sitting on 3.7 billion barrels of crude oil, and how you can still invest in one little-known driller whose shares are trading for a fraction of its value compared with Big Oil… but not for long.
Until next time,
A true insider in the energy markets, Keith is one of few financial reporters to have visited the Alberta oil sands. His research has helped thousands of investors capitalize from the rapidly changing face of energy. Keith connects with hundreds of thousands of readers as the Managing Editor of Energy & Capital as well as Investment Director of Angel Publishing's Energy Investor. For years, Keith has been providing in-depth coverage of the Bakken, the Haynesville Shale, and the Marcellus natural gas formations — all ahead of the mainstream media. For more on Keith, go to his editor's page.
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