MARKET INSIGHTS | OIL & GAS
A PROJECTION OF BRENT CRUDE OIL PRICES IN 2020 & 2021
PUBLISHED MAY 11TH, 2020 BY ALAN STEIN
The impacts of the Covid-19 “Black Swan Event” on energy markets has caused a significant disruption in demand for crude oil in 2020. Brent crude oil prices have been falling since the beginning of 2020, driven by a swift global economic contraction.
As long as the Covid-19 global economic disruption continues to cause social distancing considerations, reduced global travel, spending restraint, and business failures, Brent crude oil prices will remain below $40/bbl. Pricing below $40/bbl will force the decline in the number of active operating Oil Rigs since they will no longer be able to operate profitably. Many producers have already announced plans to reduce capital spending and have cut back on drilling wells.
Even with the production cuts among OPEC (Organization of Petroleum Exporting Countries) a supply surplus is being projected through 2021. The US Energy Information Administration projects an average of $23/bbl for Brent crude oil in the second quarter of 2020 and an average of $30/bbl during the second half of the year. They are currently projecting a slight recovery of $46/bbl in 2021, if surplus inventory declines.
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