Oil Posts Weekly Loss On China Lockdowns, But Analysts Still See 2021 Demand Recovery

Meanwhile, Iraq predicts $60 oil in Q2 2021: File Image/Pixabay

Oil prices on Friday dropped by over 2 percent and also posted a weekly loss, as traders worried about the economic fallout of some cities in China returning to lockdown mode to combat the spread of rising Covid rates.

However, due to the ongoing dissemination of vaccines, some observers think oil might reach $60 per barrel later this year.

Brent on Friday fell $1.32, or 2.3 percent, to settle at $55.10 per barrel, while West Texas Intermediate settled down $1.21, or 2.3 percent, at $52.36 per barrel; both benchmarks posted their first weekly declines in three weeks, with Brent down 1.6 percent on the week and WTI down about 0.4 percent.

John Kilduff, founding partner at Again Capital Management, said, "This renewed lockdown is striking at the heart of the demand picture in Asia: it's trouble."

Bjornar Tonnage, an analyst at Rystad Energy, said, "The market is structurally bullish, but it may be getting too ahead of forward-looking fundamentals."

Still, promising developments may buoy the crude market - or at least minimize losses - in coming weeks, until the vaccines end the pandemic: a nearly $2 trillion Covid relief package unveiled by President-elect Joe Biden may increase oil demand in the U.S.

Also, the vow of Saudi Arabia to cut output by an additional 1 million barrels per day (bpd) beginning next month caused Ihsan Abdul Jabbar, oil minister for Iraq, to remark on Friday that the commodity could reach around $60 in the second quarter of this year.

Ryan Fitzmaurice, commodities strategist at Rabobank, noted that while a short-term pullback is likely in store for oil prices, "the dips may be shallow as investor appetite for commodities appears to be increasing rapidly following the recent bullish oil calls and talk of a commodity super-cycle from some of the larger and more prominent U.S. investment banks."

But with sentiment sensitive to ever-changing news headlines, it's not surprising that some analysts would remain cautious in their 2021 prognostications, case in point: Dan Yergin, vice-chairman at IHS Markit, enthused that both the vaccine rollout and the supply cuts have come together to "carry oil prices out of what I was calling the virus alley and looking to recover in 2021."

However, to cover all bases he added that "if the vaccines were not as effective as thought, then you'd be back in weaker demand, and that would show up in price.

"But clearly there is optimism in the oil price."

In a similar vein, he added that "I think we will see U.S. shale start to creep up again in production in the second half of this year," providing there are no negative coronavirus scenarios.