Oil price set to rise at ‘fastest rate in years’ as traders look to brighter time ahead

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The oil price held strong all week as sentiment improved and investors and analysts looked to a brighter year ahead.

In Friday trading, Brent crude was still holding above US$66 with West Texas Intermediate (WTI) close to US$63 a barrel.

Most of the investment banks have increased their price target for both oil benchmarks by the end of the year.

Pre-Covid levels

Goldman Sachs Group revised up its price predictions for 2021 by US$10 a barrel on expectations of demand returning to pre-Covid levels by July.

The bank says it is expecting to see Brent crude over US$70 in coming months, perhaps as high as US$75 by end of year.

Barclays is expecting to see prices in the high sixties and Bank of America says prices will range between US$50 and US$70 a barrel as oil is set to rise at its fastest rate in years.

The global vaccination programme is being rolled out successfully and this in turn is delivering stronger oil demand. Global inventories are shrinking and storage at sea is almost at its lowest in a year.

The OPEC+ Ministerial Monitoring Committee will meet next week to consider slowly adding supply back to the market.

With a sense of stability returning to the market, some countries will feel it might be a suitable time to review the production agreement in place.

Iranian oil still remains off the market due to long positioned American sanctions, but the Iran nuclear situation has been back on the agendas for the Democratic administration.

Monitoring continues, but the Iranians remain adamant that sanctions be lifted before talks resume. While some Iranian oil has been traded with some countries, production would take a considerable amount of time to return to pre-sanction levels.

Cutting emissions

As the US made its official return to the Paris climate agreement this week, the big focus for all energy companies will be the need to cut emissions in line with government policy.

The Bank of America report this week noted that the rising oil price would attract US producers back to the market.

In the event there’s additional American supply, OPEC+ might be hesitant to change their production agreement when they meet next week.

The oil price has gained more than 20% since the beginning of the year and many investment banks expect this trend to continue.

With stronger economic data, inventory drawdowns and a return of demand due to easing Covid worries, the oil market seems well placed for a summer recovery.

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