Market expectations for oil prices would average $ 54.2 per barrel in 2021.
With regard to 2022, prices would have an average of 51.9 per barrel, according to projections by the European Commission.
The prices have been rising since November 2020 due to strong OPEC+ production cuts, compounded by a reduction in production from other producers, a weaker dollar and, recently, Saudi Arabia‘s surprise announcement to cut production by an additional 1 million barrels/day in February and March 2021.
At the same time, inventories have fallen and demand for oil has picked up somewhat in late 2020, although it remains subdued compared to 2019 levels.
Based on the futures markets, Brent prices are projected to average $ 54.7 in 2021 and $ 52.4 in 2022.
Headline inflation was driven down mainly by the sharp fall in energy inflation, but also by services inflation depressed by low demand.
In the eurozone, energy inflation averaged -8% in the fourth quarter, as the impact of the pandemic shock on oil prices in March had negative base effects.
Inflation for services fell to just over 0.5% in the fourth quarter, one full percentage point below its average during 2019.
The drop in demand and oil prices in turn led to negative inflation of non-energy industrial goods, thus dominating the remaining supply-side constraints reflected, for example, by higher shipping costs.
Market-based inflation expectations have recovered in line with oil prices
Despite the fact that inflation remained negative in the last two months of 2020, market measures of inflation expectations across the maturity spectrum have increased since November last year and at the end of January 2021 they remained close to January 2020 levels, that is, before the Covid-19 crisis.
Much of this increase can be attributed to the recovery in oil prices, especially in November.