Oil futures on Monday headed lower amid rising cases of the COVID-19 pandemic, but the improved outlook for long-term global demand has sparked one major investment bank to raise price targets for the commodity for this year and the next two years.
In the U.S., infections of the virus increased over the weekend, and places outside of the U.S., also saw increased cases. South Korea on Monday declared itself in the midst of “second wave,” Germany saw its rate of infection rise as the World Health Organization reported a record increase in global cases on Sunday.
Still, experts were suggesting that crude, after taking a beating in March and April, into negative territory, may be primed to show improved uptake, as economies show some signs of recovery from the pandemic, even if infections have been rising.
“Global oil market fundamentals have shifted significantly since we last adjusted out oil prices forecast on March 8. Given the improved outlook, we lift our 2020 Brent price forecast to $43.70/bbl from $37 prior in 2020. We also increase our 2020 average WTI crude oil price forecast from $32 to $39.70/bbl,” wrote BofA Global Research in a report dated June 19.
“Thus we also increase our 2021 Brent crude oil price forecast to $50/bbl, or $7/bbl above the forward, and our 2022 forecast to $55 from $50/bbl,” the strategists wrote.
Oil prices also have improved after the Organization of the Petroleum Exporting Countries and its allies, in a group known as OPEC+, agreed to extend a global cut of 9.7 million barrels a day to the end of July.
“Our more constructive crude oil view reflects renewed confidence (1) in the ongoing global oil demand recovery, (2) in the damage to supply created by deep capex curtailments across the oil industry, and (3) in the solid OPEC+ agreement to curb output,” BofA wrote.
West Texas Intermediate crude for July delivery, the U.S. benchmark, declined 25 cents, or 0.6%, at $39.50 a barrel on the New York Mercantile Exchange after finishing at the highest level since March 6 on Friday and putting in a weekly gain of 9.6%.
Global benchmark Brent oil for August delivery fell 20 cents, or 0.5%, at $41.99 a barrel on ICE Futures Europe, following a weekly advance of 8.9%.
However, its unclear if OPEC and allies like Russia are willing to extend production cuts into August. OPEC+ said it would review its output reductions monthly.
Russia sees between $40 and $50 to the barrel as a fair and balanced oil price, Deputy Energy Minister Pavel Sorokin said, Reuters reported.