Market expectations for recovery too optimistic, says analyst


Oil well pump jack operated by Chevron Corp. in San Ardo, California, USA, on Tuesday, April 27, 2021.

David Paul Morris | Bloomberg | Getty Images

Investors have high expectations for the global oil recovery given the recovery in the US economy – but those expectations may be “overly optimistic”, according to energy analyst Vandana Hari.

“The US recovery and the almost … dramatic US dropping of all Covid restrictions, beginning in April and May, took the markets by surprise,” said Hari, Founder and CEO of Vanda Insights.

“But that has also brought expectations on a slightly different, more optimistic path,” she told CNBC’s Street Signs Asia on Friday.

Several states in the US have lifted Covid restrictions and a sense of normalcy has returned somewhat in the country.

“The US macroeconomic indicators, the mobility indicators – are all in full swing,” she said.

Having a relatively high vaccination rate was an important part of the US reopening. According to Our World in Data, as of July 3, more than half the population – or 54.45% – received at least one dose of vaccine.

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Hari said the oil market seems to be using the US as a model for what will develop in the rest of the world.

“It may be too optimistic, but the market takes that into account,” she said.

Richer countries lead the way in vaccinations and reopenings, but Covid cases are still raging in many poorer countries that are unlikely to be able to follow the US path

Oil price forecasts

While she is “constructive” about where oil prices could go, Hari said she is less of a “mad bull” than those calling for $ 80 in 2021 or $ 100 in 2022 for oil.

Brent prices could stay near their current levels – in the $ 70 to $ 75 range – for at least the summer months, she said.

Brent crude oil futures traded at $ 76.09 a barrel in Asia on Monday, down 0.11%. US crude oil futures were also down about 0.12% to $ 75.07 ahead of another meeting of OPEC and its allies, collectively known as OPEC +. The group was unable to reach an oil production agreement on Thursday and Friday but will meet again on Monday to try to reach an agreement on its production policy.

The international benchmark Brent is up more than 45% since the start of the year, while the Nymex is up 55% since the start of the year.

Still, Hari admitted downside risks to the oil price.

“There is still a lot of uncertainty in the air about the virus, the variants and how … countries are dealing with it,” she said.

Most of the world will still not be anywhere near mass immunity in the second half of 2021, she added.