Goldman Sachs remains upbeat on the outlook for oil demand next year, thanks to an anticipated recovery in jet fuel consumption, particularly if an effective vaccine against Covid-19 materializes in the second quarter and encourages people to travel again.
“Despite near-term challenges for jet, we are constructive on 2021 oil prices as the global economy- and especially jet demand- improve as vaccines become available and crude supply continues to surprise to the downside, particularly in non-OPEC,” analysts at the bank said in a note dated September 25.
The bank predicts that the recovery in jet fuel demand next year will contribute to the oil market’s rebalancing as much as the loss of non-OPEC production due to low prices.
Analysts reiterated their “constructive” 2021 forecast for Brent crude futures, which they expect to reach $65 per barrel by the third-quarter of 2021. Brent is currently trading at $42.21.
Goldman Sachs expects the number of airline passengers to return to pre-virus levels by 2023. “We do not believe that jet fuel demand has peaked and see jet as an area of long-term demand growth in this decade,” the note said.
The largest headwinds to any recovery in jet fuel demand would be the absence of a vaccine and related travel restrictions. The bank predicts a vaccine will be available by the second quarter next year, after which global jet demand would increase by 3.9 million barrels per day from current levels by next summer.
However, the fact that video-conferencing has become the norm could lead to a lag in corporate travel, which in turn would drag on jet fuel consumption.
Despite an improved outlook for jet fuel, Catherine O’Brien, a senior equity research analyst, and the bank’s global airline team are selective on equity preferences.