Global crude oil prices are expected to be in the range of $60 a barrel over the long term period as OPEC+ decision to cap supply until demand recovers and the pandemic continuing to keep a check on consumption.
According to a research report by ICICI Securities, Brent has recovered and is over $ 60/bbl since February, 21 vs April, 20 low of $ 21/bbl driven by demand recovery from lows and OPEC+ capping supply to ensure supply deficit since July last year.
“OPEC+ capping supply until demand recovers is estimated to ensure supply deficit of 1.3 million barrels of oil per day in calendar year 2021 and keep Brent above $60/bbl,” the brokerage said.
The expectation for the crude was that it may surge in 2021 on the back of economies recovering as vaccinations tamed the spread of Covid-19. But the lockdowns again due to fresh surge in Covid cases has delayed demand recovery in Europe.
Also, the probability of US sanctions on Iran’s oil exports being lifted appears to have increased substantially. EU and other signatories to the nuclear deal are talking to Iran and US separately to bring them on the same page and revive the deal. Indications are that US sanctions on Iran exports may be lifted as early as before Iran’s presidential elections due on June 18.
“While OPEC+ capping supply should keep Brent above $ 60/bbl, delay in demand recovery and US lifting sanctions on Iran exports would cap further rise. We estimate long-term Brent at $60/bbl,” ICICI Securities said.
With regard to gross refining magind (GRMs) the outlook is modest as capacity addition is expected to exceed to refined products demand growth. Besides, hit to demand from Covid worsened the outlook. Before the Covid hit, BP Plc estimated that global liquids demand would rise by 10m b/d, but demand for refined products would grow by just 3m b/d by CY40. 9m b/d of refining capacity is under construction or planned mainly in China, India and Middle East.
Rising US and China petroleum product exports, which has hurt GRM in the past, would continue to hurt GRM in the future, too. US shale revolution, which has led to WTI prices being at significant discount to Brent and Dubai, has made US refineries very competitive and made the US a net exporter of petroleum products since CY11.
China’s auto fuel exports have been up YoY in the last seven years. Quest to reduce its petrochemical imports has led to China building large refining-cum-petrochemical complexes.
With IEA estimating global refined products demand recovering to above pre-Covid levels in CY23E, hit to demand from Covid appears to have worsened the outlook for GRM, the report said.
However, vaccine-driven recovery in global oil demand and permanent closure of refineries is estimated to boost global refinery utilisation to 77.8 per cent in CY21E from 37-year low of 72.5 per cent in CY20E.
Estimate suggest that global refinery utilisation to gradually rise from 79.1 per cent in CY22E to 80 per cent in CY26E. IEA estimates permanent closure of 3.6m b/d of refining capacity, but believes 6m b/d is required to ensure global refinery utilisation is sustainably above 80 per cent.