People & Money

Oil to Rise to $75 in Q3, Demand to Peak in 2026

Mid-April 2020, a barrel of oil sold for around $1. Today, Brent crude is almost $67 per barrel. Goldman Sachs predicts that the oil price will rise to $75 per barrel by the 3rd quarter of 2021. But the investment bank also has predicted that the demand for oil will start to fall by 2026 as the transport sector uses less oil. Goldman Sachs analysts forecast in a new report that demand for oil will not return to prepandemic levels.

As major economies roll out vaccination campaigns and economic activities pick up, the demand for oil is rising. Chinese output is expanding on the back of booming industrial production and surging exports as evident in year-on-year 18.3 % GDP growth in the first quarter of 2021. President Biden’s massive $1.9 trillion economic stimulus package is also fueling American growth.

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But structural trends such as government policies in the United States of America, the European Union and even China pushing for lower carbon emissions and the broadening shift towards electric cars progressively will reduce the demand for oil.

The certainty that millions of workers in the West and elsewhere will continue to work remotely at least for a few days in the week after the pandemic also will reduce the demand for oil. Up to 43% of the demand for oil is from passenger vehicles. According to Goldman Sachs analysts, demand from petrochemicals will become the “new baseload” for oil.

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The 2021 Nigerian budget is based on an oil benchmark of $40 yet according to the Governor of Edo State, Godwin Obaseki, the monetization of the budget deficit i.e. printing of money by the Central Bank of Nigeria,  continues despite oil prices being higher than the budget oil price benchmark.  (This is partly because the Federal Government exaggerates expected revenue). The Edo State Governor had warned Nigerians to discount the rising price of oil, warning that Nigeria is inching towards a far worse fiscal state due to the dim future prospects of oil. The forecast by Goldman Sachs that the world will hit peak demand for oil in 2025 confirms the Governor’s fears.

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