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A gradual oil demand recovery is largely on track as economies re-open, British bank Barclays said on Friday, adding that it remained constructive on oil prices despite rising coronavirus cases across Asia and potential return of Iranian supplies.

It cut demand estimates for the Emerging Markets Asia (ex-China) region, flagging the risk of further downside if the recent surge in infections persisted.

“Extended mobility restrictions in the region might slow the demand recovery somewhat, but seem unlikely to stall it for a sustained period, given largely positive results of vaccination programs worldwide,” Barclays said.

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The bank expects Brent and WTI oil prices to average $66 a barrel and $62 a barrel, respectively, this year. It sees an increase of $5 to $6 a barrel in 2021.

Brent crude futures were trading around $65.23 a barrel, while U.S. West Texas Intermediate was at $62.17 a barrel during Asian trading hours on Friday. [O/R]

In its note titled “Cautious supply, healing demand”, Barclays said a swift agreement to revive and implement Iran’s nuclear deal could pose some downside risk to its price view for the second half of 2021.

“But such a scenario might also entail a slower tapering of supply curbs by the OPEC+, potentially softening the blow to prices,” it added.

If the United States lifted sanctions on Iran, the Middle East nation could boost oil shipments, adding to global supply.

Global oil inventories could largely normalise over the next two or three months, given a recent drawdown in inventories and a projected deficit of about 1.5 million barrels a day in the second half, the bank said.

A cautious approach by U.S. producers of tight oil and continued OPEC+ restraint aids inventory normalisation, it added.

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