The oil market is finally enjoying an upward trend. Crude oil is currently trading around its end of February highs. All eyes are now on the next OPEC + meeting. OPEC and its allies have agreed to meet on June, 6, although they were originally scheduled to review their production cuts on June,9. Analysts believe that the alliance of oil-producing nations will probably extend their current commitment to oil production cuts through September,1. According to experts, this decision will only increase the demand for oil.
Stronger together
Oil has been recovering over the past few days. Market sentiment turned positive as the countries reopen their economies and their borders after the coronavirus lockdown. The upcoming meeting of the oil cartel. Following this news, Brent crude oil rose to $ 40 mark, while WTI tested $38 per barrel. It’s worth noting that the oil market hasn’t seen such results since the beginning of March.
Although just recently positive moods have slightly weakened due to rumors that Iraq and Nigeria may not agree to stick to their quotas and implement further supply curbs.
Restoring the status quo ante
The OPEC+ decision to extend the deal will bolster oil prices and become a new driver for growth. However, this momentum won’t sustain itself for long, in contrast to the news that global oil demand is back.
Recovery began with China, it was the first to cope with COVID-19 and restart its economy. At the moment, gasoline and diesel consumption in China is back to its pre-crisis levels. People began to move around more, use their vehicles, taxis and public transport. China is currently consuming about 13 million barrels per day, while a year ago this figure was at the level of 13.4 million b/d. We believe that if it weren’t for aviation fuel, demand for which is still weak, this figure would be higher.
Europe is still falling behind. In the number of EU countries, oil consumption has recovered by about 80% of the peak, while the northern and eastern economies of the region haven’t yet demonstrated stable growth dynamics. The United States has just started to show signs of economic recovery, so it is too early to make any assumptions and draw conclusions. We need to wait until demand returns to acceptable levels.
According to Fitch Solutions, the recovery of the oil market is slow, primarily due to problems in the global aviation industry, which has been severely affected by the COVID-19 outbreak and subsequent lockdown measures. Experts believe that the sector will be able to revert to pre-coronavirus levels only by 2025-2029.
What’s next?
Truth be told, we are not sure that the oil rally will continue next week. Moreover, we doubt that the price will remain at its current highs. The recent growth is speculative, and the excitement surrounding the OPEC meeting will soon fizzle out. And although the news about gradual economic recovery from Covid-19 is quite uplifting, it won’t be enough to keep oil prices near its present highs.
Besides, if OPEC+ proposes to maintain current quotas, Moscow may not agree with it. And other cartel members (Iraq and Nigeria) may fail to comply with the agreed output cuts. All this uncertainty makes the benchmark crude vulnerable. Taking into account the situation and all of the above-mentioned factors, we expect a decline in the area of $ 32- $ 35 per barrel, where oil prices will consolidate for the next coming weeks.
If you like our articles, follow us on Facebook and Instagram. Stay tuned for more interesting posts on our blog. We post new material several times a week.
