Oil prices to top $60/b next year as market rebound continues: Citi's Morse

London — Global oil prices will likely continue to rebound over the coming eighteen months to over $60/b, driven by OPEC+ efforts to curb supplies and the near-term loss of US shale oil as producers react to the recent downturn, according to Ed Morse, the head of commodities research at Citigroup.

Citi currently sees Brent crude futures averaging $48/b in the fourth quarter of 2020, rising to average $61/b during the final quarter of 2021, Morse told the Global Executive Petroleum Virtual Conference hosted by S&P Global Platts on June 24.

"We're relatively bullish the market going into 2022 because we see relatively strong discipline on the OPEC+ side and we see a postponement of projects and we see lost oil in the world, particularly in North America," Morse said.

S&P Global Platts Analytics on May 29 in its World Oil Market Forecast said that Dated Brent would rise gradually to $45/b by the end-2021 as OPEC+ brings on enough supply to manage prices that do not over-stimulate non-OPEC supply. Brent crude prices have rebounded from near two-decade lows of under $16/b on April 22, as stay-at-home orders were eased and OPEC+ agreed to slash almost 10 million b/d in supply from the saturated oil market. Front-month Brent futures stood at around $41.80/b in midday European trade.

Further out, Citi sees Brent futures averaging $59/b and $55/b in 2022 and 2023 respectively, Morse said, as more non-OPEC oil supplies come onstream in response to the firmer prices.

"The new normal will see prices in a lower range," he said. "The forward curve stabilizing, not at the $60 level, but at a lower level. We don't know whether that low level is going to be $55 or $40/b it's not likely to be much below $45, we think."

The comment comes two days after BofA Securities raised its oil price forecast for the next two years on signs of faster-than-expected global oil demand recovery, massive industry spending cuts and strong OPEC+ adherence to curbing crude supplies. The bank also raised its 2021 and 2022 Brent price forecasts to $50 and $55/b respectively.

Bullish scenario

Morse said he also sees the potential for oil prices to surge back to over $70/b during if unrest over spending cuts disrupts output in vulnerable producers such as Iraq, while the global economy continues to rebound from the pandemic.

"We know there's uncertainty and instability in big oil producing countries, including OPEC's second-largest producer Iraq, and those governance problems, or dominated by a lack of cash flow to pay for government operations," he said.

Key to the future oil price curve, however, will be production costs which Citi expects will stabilize, helped by cost deflation in the near-term due to pandemic, he said.

Also speaking at the event, the International Energy Agency's head of oil markets division Neil Atkinson said he sees the second half of 2020 and 2021 as "supportive of higher prices" due to tighter oil market fundamentals, which are expected to erode the massive level of global oil builds during March and April.

The IEA sees global oil demand growing by 4 million b/d more than supply next year, which would mean shifting some of the huge oil stock overhang that has built up during the pandemic.

In the near-term, Platts Analytics expects a trend towards $50/b over a longer period, a level needed to incentivize new oil production, its head of Global Analytics, Chris Midgley said.

"It's still going to be this dance between OPEC and non-OPEC," Midgley said. "We see plenty of new oil out there that come onto come into the market at sub-$50-$45 full-cycle breakeven."