$100 oil? Analysts predict the outlook for crude prices after a strong rally in the first half of 2021

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An employee wearing a face mask refuels a vehicle at a gas station of Sinopec (China Petroleum and Chemical Corporation) on July 10, 2020 in Xinle, Hebei Province of China.

Jia Minjie | Visual China Group | Getty Images

LONDON — Oil prices surged more than 45% in the first six months of 2021, rallying toward $80 a barrel for the first time in more than two and a half years.

Analysts on Wall Street believe there is potential for crude markets to climb even higher in the coming months, although not everyone is convinced that’s the case.

International benchmark Brent crude futures traded at $75.76 a barrel on Friday, down around 0.11%. The oil contract recorded gains of more than 45% through to the end of June, having stood at $51.80 on Jan. 1.

U.S. West Texas Intermediate futures traded at $74.28 during early deals in London, almost 0.1% lower. WTI posted gains of more than 51.4% during the first six months of the year.

Brent futures rose more than 8% in June while WTI climbed over 10%, reaching their highest levels since Oct. 2018.

Analysts attribute the oil price rally to a combination of factors, including the rollout of Covid-19 vaccines, a gradual easing of lockdown measures and massive production cuts from OPEC and non-OPEC members — an energy alliance known as OPEC+.

What next for oil prices?

Tamas Varga, oil analyst at PVM Oil Associates, said global and regional oil inventories have been falling so far this year, supporting oil prices. “This trend is set to continue for the rest of the year,” he added.

It “would only come to an abrupt end if central banks start increasing interest rates unexpectedly because of fear of inflation or in case OPEC raises production above demand — or they fail to accommodate extra Iranian barrels if the Persian Gulf OPEC member comes back to the market.”

The prospect of OPEC+ failing to accommodate additional Iranian oil exports “looks unlikely at the moment,” Varga said.

‘Demand destruction’

Pump jacks are seen in the Midway Sunset oilfield, California.

Lucy Nicholson | Reuters

To be sure, Morgan Stanley believes Brent will trade between $75 to $80 through to the middle of 2022.

On Thursday, OPEC and its non-OPEC partners, an energy alliance often referred to as OPEC+, opted to delay a decision on whether to ramp up oil supply. Sources told Reuters that the UAE had blocked a plan for an immediate easing of supply cuts.

The Middle East-dominated producer group will meet again Friday when talks will continue.

Chris Midgley, global head of analytics at S&P Global Platts, said the OPEC+ meeting would have a “strong bearing” on oil prices since the outcome will impact supply from next month.

“Platts Analytics believes prices could briefly test the high 70’s before prompt European buying starts to wane at the end of July and potential return of Iranian barrels enable Brent to retrace down to low 70s,” Midgley told CNBC via email.

“OPEC may look to hold prices above $70/bbl but ultimately the forward curve suggests fair value slightly below,” he added.

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