As we approach the end of 2020, we are reminded of one statistical certainty when it comes to oil price forecasts. If you set anything other than a range, you will get wrong. And even for the forecasters and forecasters who do set a range, the probability of the actual price falling within the chosen range is about as sure as a range of prices selected by throwing an arrow at a number on the wall. That has never stopped oil price forecasters from giving it a try.
We’ve rounded up some of our favorite oil price forecasts this year. And while you may think this may not be fair exercise given the black swan event like the coronavirus pandemic, we’ll remind you that the predictions made even during the pandemic were quite suspicious.
The United States Energy Information Administration (EIA) has the unfortunate position on our list of going first. Her January forecast for 2020, oil prices would later turn out to be high for both WTI and Brent – not surprising given the events that were about to happen. While there were reports that an outbreak had started as early as the first days of January 2020, it wouldn’t be until January 13 before it was known that the first Covid-19 case had escaped China’s borders. But when the EIA released its STEO on Jan. 14, the demand for oil due to the future pandemic wasn’t even on the radar. What was on his radar? Tensions between the United States and Iran, and attendant fears that there would be some disruption to Middle East oil supplies.
The forecast for the price of an average WTI barrel in 2020 was $ 59.50 a barrel, while the Brent forecast was $ 65 a barrel. This compares to an average Brent price of $ 64 in 2019. But Brent fell sharply in January, and on February 4, Brent closed the day with just $ 54, as the world already – pre-pandemic – feared slack demand to oil.
For the coming months, the EIA has revised down its price forecasts, but always on the hunt for prices that had fallen lower in the previous month.
Although the EIA shot too high because it had no prior knowledge of Covid-19, Morgan Stanley maybe shot too low. Morgan Stanley has one Brent prediction in May at the height of the lockdowns best described as safer-is-not-always-better. The Brent prediction, made towards the end of May, was that Brent would trade $ 40 a barrel by Christmas. Brent, of course, received a vaccine of his own when several vaccine candidates were found to be effective and the limited rollout was set to begin weeks before Christmas. Subsequently, OPEC had discussions about not easing production cuts as promised, adding even more optimism to the market. By December 3, the day OPEC + finally reached an agreement to ramp up production only slightly in January, Brent had hit $ 48.70 a barrel – 22% over Morgan Stanley’s forecasts.
ExxonMobil is not your traditional market analyst, but it certainly has more skin to it than most analysts. At the end of November, which can hardly be considered a price prediction for 2020, the US super major cut it oil price expectations between $ 50 and $ 55 a barrel until 2025. Exxon’s oil price forecasts are considered proprietary, so this rare glimpse (courtesy of the WSJ) into what it believes will be oil prices for the next five years shouldn’t be dismissed. Exxon’s 2025 forecast for Brent was $ 62.
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Speaking of safe, there is safety in numbers. Just two weeks after the EIA released its 2020 oil price forecasts in January, Reuters conducted a poll from 50 economists and analysts. But just because there were more doesn’t mean they were more right. In fact, this forecast, which set Brent’s average price at $ 63.48 in 2020, serves to highlight how wrong everybody used to be. A April poll mid-lockdown by Reuters sang a completely different tune, expecting Brent to average just $ 35.84 a barrel.
Goldman Sachs has sharply lowered the oil price Q2 prediction towards the end of March – in fact, it was the second downward adjustment in just a few weeks, when the pandemic took its toll on the oil markets. For the second quarter, Goldman estimated that Brent would average $ 20 a barrel. While the April average eventually topped $ 20, the May average Brent price hit just under $ 30 a barrel, and prices had rebounded to $ 40 by June.
In June, as Brent was trading near USD 40, optimism began to return to the market. As a result, Bank of America (BofA) in June adjusted upwards its forecast for a 2020 Brent barrel to $ 43.70 (higher than the previous $ 37 estimate). While BofA ended up getting closer than many (which is to be expected with nearly half of the year being placed in the Known category), BofA will likely be about $ 10 too low. When it made the prediction, the optimism of the vaccine candidate was of course not yet present in the market. What also BofA could not have predicted was the market sentimentality about this optimism and the complete and very atypical disregard for the rapidly growing stocks of crude oil in the United States.
Fast forward to September, when many of the lockdowns around the world were gone. Barclays Commodities Research raised her forecast for Brent for 2020 – with three months to go – to $ 43 a barrel, citing a limited potential downside to the demand for “continued OPEC + restraint” after the cartel held members responsible for failing to meet their production cuts, and “the evolving response function of both governments and the general public to the virus threat. Brent was trading near $ 43 at the time of the anticipated increase.
Regardless of where the forecasts seemed to land, no forecast indicator got it right this year unless, of course, they made projections in the last month or so of the year. Those January predictions – even through the agendas of the best of the best – show how volatile the oil market has become and can serve to broaden the forecast ranges we see for 2021 and beyond.
By Julianne Geiger for Oilprice.com
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