Oil prices gained 2.3% on the week to settle on Friday at $63.58 for the June WTI contract. Market participants appeared more upbeat on the global recovery in demand despite COVID hotspots like India. A report on Wednesday from Goldman Sachs likely helped buoy oil prices as the investment bank reiterated its bullish outlook for oil throughout the year. The bank forecasts Brent will reach $80/Bbl this summer amid rising demand.
AEGIS agrees that the global economy is poised for more recovery this year, given the pace of vaccinations and the reopening of economies. However, we would note that OPEC and its allies still have about 7% of the world's oil supply sitting on the sidelines. The group has earmarked about 2 MMBbl/d to come back online over the next three months, expecting demand growth "recovery" for the remainder of 2021. OPEC+ has managed the oil market very closely; its current policy is reevaluated every month. It is possible careful supply releases from OPEC+ could keep prices stable at near current levels in concert with demand growth.
Hedging recommendations from the trading team lean toward utilizing swaps in the remainder of 2021 and 2022. Cal 2022 WTI nearly reached $60/Bbl on Thursday before retreating to $58.05 on Friday. If hedging into Cal 2023, we would suggest using costless collars to allow for upside participation.