The UK oil industry may fare better than expected, according to the Bank of America’s Global Energy Weekly and as quoted by Trade Arabia.
The report points out how in June, the bank already uprated its forecasts for Brent crude by $5 per barrel, to average $43 per barrel in 2020 and $50 per barrel in 2021. While the market spot prices continue to be roughly range bound, the Bank of America notes a faster than expected uptick in oil futures for 2021.
Thanks to a large drop in US shale production, high OPEC+ compliance and an expected steady recovery in demand, the bank believes large deficits could appear in the markets, helping to offset substantial inventories. The report also points out that global inventories are already back to normal levels, if the US and China are excluded.
The report summarises its prediction for Brent as follows:
“Opec’s resolve will partly dictate the pace of oil stock draws, but we believe Brent prices could easily rally to $60/bbl next year. Backwardation, if oil keeps rallying, could kick in by 1Q21. This baseline view assumes we avoid a major second COVID-19 wave in 4Q20.”
If Brent does indeed return to the $60 per barrel level, companies with operations on the UK Continental Shelf (UKCS), such as Shell and BP, the oil major behind the Castrol lubricant brand, will benefit from having it return to profitability earlier. Despite advances in production methods on the UKCS, most plays depend on reasonably high oil prices to be economically feasible.