Rising coronavirus cases continue to keep oil prices in the low $40 range, as oil markets worry on the potential of a second wave, which could take a hit on demand.
Oil prices on Friday saw Brent closing on $43.14 – a weekly fall – with West Texas Intermediate on $40.59, as both benchmarks see continued stability at that price range. But, with Covid19 showing no signs of abating until a vaccine is found, prices find themselves with little momentum to break beyond their current levels, which have rallied since May on Opec+ production cuts and the gradual reopening of global economies.
“Supply-side adjustments from Opec+ and other market-oriented producers, such as the US shale patch, will help to push the oil market into deficit in H2 2020 (second half of 2020) after an enormous build in inventories in Q2 2020 (second quarter),” noted Edward Bell, senior director for market economics at Emirates NBD. “However, from here on out the impact on balances from the supply side will be more muted… From August production from Opec+ countries is actually set to increase as the deep level of cuts is tapered. Another sizeable cut to output appears unlikely to us, even if prices stumble,” he added.
Bell said the bank’s forecast for oil prices would be above $42 for 2020, with the oil market remaining volatile from the virus and its associated risks. “At $42.55/b for Brent futures oil prices will still be down by 34 per cent year on year and well below levels that allow governments across MENA (Middle East and North Africa to run balanced budgets. “Downside risks to our forecast remain considerable with a potential for a relapse into lockdowns a major threat to the sustainability of oil demand,” he added, reports Gulf News.