BRENT crude prices are set to remain above $60 per barrel this year in spite of fears about the impact of the coronavirus on demand experts have predicted.
Analysts at Bank of America Merrill Lynch investment bank think prices could be supported in coming months as firms start to scale back investment amid concerns about the environmental impact of oil and gas activity.
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They forecast that Brent crude should average $62/bbl in 2020 following a period of volatility which has seen the price swing in response to geopolitical developments.
The prediction may be welcomed in the North Sea oil and gas industry as it emerges from the deep downturn triggered by the sharp fall in the oil price since 2014.
While the crude price is likely to remain well below the $115/bbl peak reached in 2014, oil and gas companies would expect to generate good returns with crude trading at $60/bbl or above. Many cut costs and increased efficiency in response to the downturn.
The recovery has been complicated by movements in the crude price. This rose from $52.50/bbl early last year to above $70/bbl amid tension in the Middle East. It has fallen to around $56.10 as the spread of the coronavirus has triggered fears about the outlook for growth around the world.
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In a global research report BofA Merill Lynch said prices were becoming more anchored around $60/bbl and volatility looked likely to reduce “despite coronavirus risks”.
The bank reckons moves by US shale producers to focus investment on the most profitable opportunities will help support prices while Opec members will act if pandemic risks rise again.
Its report provides evidence that concerns about the environment are impacting on industry thinking: “Environmental risks will start to impact energy asset values in a meaningful way, further reducing investment and setting the stage for increased oil price uncertainty in the years ahead,” said the bank.
Downside risks include US pressure on China.
The bank expects Brent crude prices to average $50/bbl to $70/bbl through 2025.
Investment in the North Sea boomed during the period of $100/bbl plus oil that ended after growth in global supplies ran ahead of demand. The price fell to less than $30/bbl early in 2016 before Opec members agreed that year to curb production.
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