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Brent Crude Oil Seen Stable In the Years Ahead

Posted: Tuesday, October 27th, 2020

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The Brent crude oil price forecast for the years ahead reflects a stabilizing market. In a special report released this October, the International Monetary Fund (IMF) delivers a special feature related to developments in the commodity market.

One of the biggest shocks in 2020 came from the oil market when WTI settled below zero. The price of oil has a tremendously important role in the world’s economies. First, it influences inflation and inflation expectations. Second, it leads to central banks changing their monetary policy as inflation changes. Third, sharp movements in the price of oil create supply shocks difficult to balance by both monetary authorities and oil-producing countries.

Brent Crude Oil

Brent Crude Oil and Brent Futures Curves

Brent is a price benchmark for oils in the Atlantic basin. As such, it helps in setting the price of almost two-thirds of the crude oil supplies traded in the world. Together with the WTI price, it is used for purchases of oil all over the world.

The IMF forecasts a stable Brent crude oil price for the years ahead. More precisely, within a 68% confidence interval, it sees the Brent crude oil price oscillating between $35 and $65 in the next two years.

Considering what happened in 2020, when oil prices declined by 60% between February and March, stable prices are more than welcomed for all market participants. Late April supply reductions and the subsequent ones made it possible for the oil prices to recover. As such, the crude oil price remained relatively stable at $40 in the last several months, making it easier to understand the possibility for the range to hold a couple of more years from now.

Oil Market Healing Gradually

The coronavirus pandemic brought a sharp decline in global driving and walking mobility indices. By March-April this year, they had contracted by more than half when compared to the start of the year. However, recent developments saw the indices recovering to pre-crisis levels – good news for the oil market and the oil demand forecasting.

On the flip side, while road traffic recovered, we cannot say the same for air traffic volume. Only in 2021, the International Energy Agency sees the demand picking up significantly.

Stable oil prices are more than good news for monetary policy. Most central banks in the developed world have a mandate centered around price stability. Without dramatic shifts in the price of oil, they will have an easier task of sending inflation to the target.

As such, stable Brent crude oil price prospects for the year ahead should be viewed as helping the economic recovery. The more stable the oil prices, the better.

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