Amidst vaccine roll-outs and growth in the global economy, the International Monetary Fund (IMF) expects oil prices to recover to an average of $50 per barrel this year, which is almost 20 percent higher than 2020 levels.
In the October 2020 update, the IMF had expected oil prices to average $46.70 a barrel in 2021.
Brent, the international benchmark, declined by an average of nearly 25 percent last year, as demand crumbled due to mobility restrictions imposed in an attempt to stop the spread of the COVID-19 pandemic.
However the US-based lender, IMF cautioned that average prices for 2021 will remain “well below” the average for 2019. The IMF expects prices to average $48.80 per barrel in 2022.
Saudi Arabia, the world’s top oil exporter, is expected to see its economy rising by 2.6 percent in 2021, recovering from a 3.9 percent slump in 2020, which was largely due to the low oil prices last year. Meanwhile, the US economy is set to rise by 5.1 percent this year, following a contraction of 3.4 percent last year.
The IMF uses a simple average of prices of Brent, Dubai and WTI to calculate its oil prices. With that methodology, the IMF said oil prices averaged $41.29/b in 2020 and would rise to $50.03/b in 2021, before falling back to $48.82/b in 2022.
This year, the average price of oil will rise from the 2020 average to reflect the expected global recovery, while non-oil commodity prices are also expected to increase. Prices of metals, in particular, are forecast to accelerate strongly in 2021, according to the IMF.
In the updated forecast IMF said that the global GDP will grow 5.5 percent in 2021, after a 3.5 percent contraction in 2020. Global economic growth for 2022 is expected to slow to 4.2 percent.
“The 2021 forecast is revised up 0.3 percentage point relative to the previous forecast, reflecting expectations of a vaccine-powered strengthening of activity later in the year and additional policy support in a few large economies,” the IMF said in its report.
The IMF said advanced economies are projected to recover more quickly than developing countries due to quicker access to vaccines and broader fiscal measures. “Oil exporters and tourism-based economies face particularly difficult prospects given the subdued outlook for oil prices and expected slow normalization of cross-border travel,” it said.
The fund said its forecasts were subject to significant uncertainty, with the pandemic yet to be contained.