Oil prices set for mod­est re­cov­ery on OPEC+ cuts

Ex­perts say a resurg­ing virus could bring fur­ther re­stric­tions and sti­fle de­mand

Arab News - - Business News - Reuters Ben­galuru AFP

Oil prices will con­sol­i­date at around $40 a bar­rel this year, with a re­cov­ery gain­ing steam in the fourth quar­ter and into 2021 on OPEC-led pro­duc­tion cuts and as economies limp back from coro­n­avirus lock­downs, a Reuters poll showed on Tues­day.

The sur­vey of 45 analysts fore­cast bench­mark Brent crude would av­er­age $40.41 a bar­rel in 2020, up from a fore­cast of $37.58 in a sim­i­lar sur­vey last month.

The global bench­mark has av­er­aged $42.10 so far this year. It was trad­ing just be­low $42 a bar­rel on Tues­day, while West Texas In­ter­me­di­ate (WTI) crude was at $39.19.

The poll es­ti­mated the price of WTI would av­er­age $36.10 a bar­rel this year, up from a fore­cast of $32.78 in the May sur­vey.

Of the 37 con­trib­u­tors who par­tic­i­pated in both the May and June polls, 26 raised their 2020 Brent fore­casts.

“The pace of this re­cov­ery will re­main mod­est in the third quar­ter,” said Harry Tchilin­guirian, head of com­mod­ity re­search at BNP Paribas.

But he said it would “ac­cel­er­ate in Q4 under the com­bined ef­fect of vol­un­tary out­put re­straints by OPEC+ pro­duc­ers, mar­ket­driven pro­duc­tion de­clines and a se­quen­tial re­cov­ery in de­mand with the re­in­state­ment of eco­nomic ac­tiv­ity re­in­forced by mon­e­tary and fis­cal stim­u­lus mea­sures.”

Under a new agree­ment the Or­ga­ni­za­tion of the Pe­tro­leum Ex­port­ing Coun­tries and al­lies, known as OPEC+, have been cut­ting out­put since May by a record 9.7 mil­lion bar­rels per day (bpd) to sup­port prices and de­mand hit by the pan­demic. OPEC+ com­pli­ance with the cuts in May was 87 per­cent.

How­ever, analysts warned that a global rise in COVID-19 cases, which is ap­proach­ing the 10.5 mil­lion mark, could po­ten­tially spark fur­ther re­stric­tions and slow any eco­nomic re­cov­ery, and in turn, de­mand.

Analysts ex­pect global de­mand to con­tract by be­tween about 6.5 mil­lion-8.7 mil­lion bpd this year, com­pared with last month’s pre­dic­tion of 6.4 mil­lion-10 mil­lion bpd.

“End-2020 de­mand will likely fall well short of end-2019 lev­els given that peo­ple will take some time to re­turn to their old habits af­ter re­stric­tions are lifted,” said UBS an­a­lyst Gio­vanni Staunovo.

BACK­GROUND

OPEC+ has been cut­ting out­put since May by a record 9.7 mil­lion bar­rels per day (bpd) to sup­port prices and de­mand hit by the pan­demic.

Analysts ex­pect global de­mand to con­tract by be­tween about 6.5 mil­lion-8.7 mil­lion bpd this year, com­pared with last month’s pre­dic­tion of 6.4 mil­lion-10 mil­lion bpd. Shuttersto­ck

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