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

IGA, may distribute information/research produced by its respective foreign affiliates within the IG Group of companies pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the research is distributed in Singapore to a person who is not an Accredited Investor, Expert Investor or an Institutional Investor, IGA accepts legal responsibility for the contents of the report to such persons only to the extent required by law. Singapore recipients should contact IGA at 6390 5118 for matters arising from, or in connection with the information distributed.

The information/research herein is prepared by IG Asia Pte Ltd (IGA) and its foreign affiliated companies (collectively known as the IG Group) and is intended for general circulation only. It does not take into account the specific investment objectives, financial situation, or particular needs of any particular person. You should take into account your specific investment objectives, financial situation, and particular needs before making a commitment to trade, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit.

Please see important Research Disclaimer.

Trade on commodities

Trade commodity futures, as well as 27 commodity markets with no fixed expiries.1

  • Wide range of popular and niche metals, energies and softs
  • Spreads from 0.3 pts on Spot Gold, 2 pts on Spot Silver and 2.8 pts on Oil
  • View continuous charting, backdated for up to five years

1In the case of all DFBs, there is a fixed expiry at some point in the future.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices
liveprices.javascriptrequired
liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

liveprices.javascriptrequired

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 20 mins.

The Momentum Report

Get the week’s momentum report sent directly to your inbox every Monday for FREE. The Week Ahead gives you a full calendar of upcoming key events to monitor in the coming week, as well as commentary and insight from our expert analysts on the major indices to watch.

For more info on how we might use your data, see our privacy notice and access policy and privacy webpage.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.