Oil Prices Are Unlikely To Collapse Again
The oil market has already priced in the slowing recovery in global demand and growing uncertainties about the economy as coronavirus cases have re-emerged in many parts of the world.
Analysts broadly agree that oil prices are unlikely to be much higher than currently around $ 40 a barrel by the end of the year, as global inventories are still high and oil demand has stalled with the end of the U.S. cruising season and the continuing trend of rising COVID-19 cases, particularly in large European economies, which have begun to re-impose some restrictions to contain the spread.
Despite falling fundamentals and headwinds from the so-called second wave of infections, oil prices are unlikely to plummet again, as in April when oil demand collapsed by 20 percent, Michael Lynch, expert on petroleum economics and energy policy, writes in Forbes.
At the same time, even if we don't see teenage oil prices this year, the risks and uncertainties in the markets will still be on the downside, leaving little room for price gains for the rest of 2020.
Oil prices are facing band-pegged trading in the coming months, with volatility expected in the US election in early November, most analysts say. All in all, the oil is set to a lower level in the short term, but with a small chance of falling below $ 35 a barrel again.
While the ongoing coronavirus and the resulting slow recovery in economic and oil demand continue to put pressure on oil prices, OPEC + production cuts and declining US oil production have managed to bring prices down.
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For now, at least, no one expects widespread national lockdowns around the world that could weigh on demand as much as it did in April.
Both Europe and the US are fighting the second wave, which will intensify with the flu season in the fall and winter.
This second wave is likely to further slow the recovery in oil demand, which stalled at the end of the summer, as fuel consumption in the US and other mature economies is around 10 percent lower than last year.
Despite the fact that some restrictions are being reintroduced in many places and local locks are returning in the UK and Spain, the major economies are foregoing national locks.
Further restraints could slow economic recovery, and hence the recovery in oil demand, and create the conditions for lower and longer oil prices, with a slump in the youth unlikely.
Until an effective vaccine is in place, "great uncertainties and risks will continue to destabilize the oil market and affect the pace of economic recovery," OPEC Secretary General Mohammad Barkindo said last week.
In the US, the recovery in gasoline demand stalled at the end of the driving season.
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"The plateau in demand is a symptom of the continued aggressiveness of the coronavirus and tells us it will take longer to return to normal," said Daniel Yergin, vice chairman of IHS Markit, in early September.
The stalled recovery in oil demand and the lack of a COVID-19 vaccine are likely to push the rebound in oil prices to $ 50 a barrel by 2021 as inventories continue to pile up in 2020 due to weak refining margins and demand, Ole Hansen said, Head of Commodities Strategy at Saxo Bank said last month.
"Current sector-bound trading behavior shows a market torn between short-term weakness and expectations for a recovery, but the timing of which is still lagging," Hansen said earlier this week.
Last week's monthly Reuters poll found that dozens of analysts don't see much upside for oil this year due to the uneven recovery in demand, while 10 investment banks polled by the Wall Street Journal don't expect oil prices to hit $ 60 a barrel Pre-pandemic levels depressed demand and prices - through the end of 2021. Banks expect an average price of over USD 50 per barrel in the fourth quarter of 2021, but only then do not expect WTI crude oil prices to rise to USD 51-55 per barrel in 2022.
The market may not see oil for $ 20 a barrel next year, but prices are unlikely to return to pre-coronavirus levels in 2021.
By Tsvetana Paraskova for Oil Genealogie
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