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Oil Update—February 2021

I am increasing my February West Texas Intermediate oil price forecast by $10 to $57.50 to $67.50 per barrel for March 2021.

I was too conservative in my prior estimate. Oil prices moved faster and more aggressively than I expected.

The reason for my latest increase is that COVID-19 cases are coming down quickly and warmer weather will mean that people will be spending more time outdoors where they are less likely to contract the illness.

A lot of forecasters have become bullish on oil and are now predicting strong prices for the remainder of the year. A good example is Simon Flower’s February 26 article “Will oil companies start spending again” posted on Wood Mackenzie’s site.

We think a fall below US$55/bbl is unlikely this year with the global economy recovering and oil market fundamentals continuing to improve.

I agree with his position that companies will be using surplus cash flow to pay down debt and strengthen their financial capacity. Companies know that the world has changed over this past year. More people will be working from home and there is a greater focus and emphasis on environmental, social, and governance measures.

Having said that, I expect that there is a lot of pent-up demand for traveling. People will want to visit those that they have not seen for a long time, venture out with family and friends as well as exploring new places. Even so, society has changed, and companies must adapt.

I am deliberately ignoring the chatter surrounding the potential Iranian negotiations. OPEC+ has the necessary flexibility to address the Iranian situation in whichever way it goes. Instead, I am more focused on the global recovery.

To reiterate, I forecast that WTI prices will range between $57.50 and $67.50 per barrel for March. If vaccinations go exceedingly well and the number of COVID-19 continues to diminish more quickly than expected, then there is some risk to the upside.

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