CFDs are a leveraged product and can result in losses that exceed deposits. Please ensure you fully understand how CFDs work and what their risks are, and take care to manage your exposure. CFDs are a leveraged product and can result in losses that exceed deposits. Please ensure you fully understand how CFDs work and what their risks are, and take care to manage your exposure.

Is the oil price worth $50 a barrel?

Global crude prices are expected to average at $43 a barrel in the second half of 2020, with that figure expected to rise to $50 in 2021. But will oil price forecasts be realised or could the commodity fall short of expectations?

  • Will oil prices average $50 a barrel in 2021?
  • Investors remain concerned by oversupply and Covid-19
  • US shale and rise of renewables could see oil prices struggle

According to the US Energy Information Administration (EIA), global oil prices are expected to average at $43 a barrel throughout the second half of this year, with that figure expected to rise to $50 in 2021.

But will oil price forecasts be realised or could the commodity fall short of expectations considering the myriad of headwinds financial markets face over the next 14 months?

Oil prices struggle amid weak demand and oversupply concerns

Oil prices were trading at around $61 a barrel at the start of the year, only for prices to crash in March as lockdowns eroded energy demand and markets panicked to make sense of the coronavirus pandemic, with futures contracts closing at -$37 a barrel in April amid the turmoil.

Thanks to production cuts by OPEC, oil prices began to stabilise in June, averaging $43 a barrel throughout the month, with the commodity trading sideways throughout the summer, despite ongoing fears about a second wave of Covid-19 cases and oversupply concerns.

Brent crude looked like it would fall below $44 a barrel in early morning trading on Thursday, though it was able to rebound as the day went on to trade at $44.72 (-1.43%) at the time of publication.

The US West Texas Intermediate followed a similar trajectory, briefly slipping below $42 a barrel, only for the benchmark to recoup some of its losses later in the session to trade at $42.46 (-1.12%).

US shale and renewables transition diminishes OPEC influence

The increase in US shale production and companies transitioning to renewables amid a weak price outlook for oil has the potential to weaken the political and economic clout of OPEC.

With its power potentially diminishing it could lead the oil cartel to behave erratically destabilising oil markets further in the process and potentially driving down the commodity’s value.

If this scenario plays out it could exacerbate tensions in the Middle East, with Saudi Arabia keen to maintain higher oil prices as it relies on the commodity as the primary source of income as it lacks a diversified economy.

It could also weigh on oil prices and see crude fall short of analysts’ $50 average target for 2021.

Brent crude: technical analysis

Brent crude has been on the slide since Wednesday’s peak, with a decline in risk assets hitting energy prices, according to Josh Mahony, senior market analyst at IG.

‘That move has taken us into a very deep retracement, with an ascending trendline in play here,’ he added. ‘With that in mind, another move higher looks likely, with a bullish outlook in play unless we see a break below the $45.18 level.’

How to trade commodities with IG

Looking to trade Brent crude and other commodities? Open a live or demo account with IG and buy (long) or sell (short) shares using derivatives like CFDs in a few easy steps:

  1. Create an IG trading account or log in to your existing account
  2. Enter ‘Oil - Brent crude’ in the search bar and select it
  3. Choose your position size
  4. Click on ‘buy’ or ‘sell’ in the deal ticket
  5. Confirm the trade

This information has been prepared by IG, a trading name of IG Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
CFDs are a leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your initial deposit, so please ensure that you fully understand the risks involved.

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