India, the world’s third largest oil importer, is the latest coronavirus hotspot. It has recently hit a record number of new daily coronavirus cases – a statistic that dampened demand for oil and pushed up oil prices.
OPEC + has, of its own necessity, intervened in the oil market on the supply side of the equation to offset the depressed demand for oil. And despite the group’s relative success in curbing oil production to prevent excess oil reserves from ballooning before the market fully recovers, India’s booming case counts have prevented oil prices from recovering faster.
This has put even greater pressure on OPEC + to provide to meet market expectations. But there is undoubtedly a shift in the momentum of the oil markets. In fact, oil prices have risen somewhat in recent months, and the overwhelming majority of oil experts and analysts believe this trend will continue.
The question is not whether the market will get better. The question is how fast will it get better and where will this recovery peak.
Lockdowns in Europe add another unknown element to the oil price mix. One month ago, Europe renewed many of its restrictions, which locked in and delayed the recovery of oil prices. But now that India is in the midst of its worst COVID-1
In the United States, Covid-19 cases are also shrinking as the number of vaccinated grows. As a result, several U.S. states, including New York, are relaxing restrictions. All this will have a profound impact on the price of crude oil. Related: Asian LNG buyers prepare for a harsh winter
But that is not to say that all analysts agree on what this will do for the demand for oil, let alone what effect it will have on oil prices.
The IEA first revised its expectations for oil demand for this year on 14 April. According to its estimates, oil demand will now increase by 5.7 million bpd this year and reach 96.7 million bpd. The reason for this upward revision was due to increases in the IEA’s expected oil demand for the US and China – the two largest oil importers in the world.
As of April 6, the EIA experienced global oil demand of 97.7 million bpd this year. Compared to Brent prices, which were close to $ 65 per barrel. Barrel in March, EIA does not see much movement in the Brent price, as it estimated $ 65 / barrel in Q2 2021, $ 61 per barrel. Barrel in H2 2021 and even worse – $ 60 per. Barrel in 2022.
Not even a week ago, Rystad Energy adjusted its oil demand in April by almost 600,000 bpd. In May, it revised it down by 914,000 bpd, citing India’s demand problems due to the pandemic – a situation that would undoubtedly result in a new inventory.
But not everyone is so pessimistic. Goldman Sachs sees things so much brighter with oil reaching $ 80 this summer. Its rationale for this positive view of oil prices is simple. “The magnitude of the forthcoming change in demand – a change that supply cannot match – must not be underestimated.”
Rystad analyst Louise Dickson said oil demand should still increase by 3 million bpd between now and the end of June, India problems or no. According to her, oil prices should return to $ 70 per barrel. Barrel in the coming months.
UBS sees vaccine rollout as a major positive for the oil industry. As people return to normal activities and businesses reopen completely, oil demand will cause Brent to rise to $ 75 a barrel in H2, according to analyst Giovanni Staunovo. Related: Oil prices hit 7-week optimization as needed
Moody’s also has a rather positive view at the time of an oil price fluctuation, citing the rising consumer demand that is promoting a global economic recovery. But their medium-term price range is still limited to $ 65 per share. Barrel. Moody’s sees this economic recovery as accelerating an recovery in oil demand at the end of this year and the beginning of next year.
The outlook may be uncertain, but the current trend is certainly a pull of oil stocks – a sign of increased oil demand, while OPEC + continues to limit production. In the highly visible US oil market, for example, commercial stocks have finally retreated to the five-year average for this time of year of 493 million barrels.
India’s virus explosion does not prevent oil price recovery. But it is very likely that it will slow the recovery well into the second half of this year or even the beginning to the middle of next year.
If that turns out to be the case, it’s a long time for OPEC + members to continue their production restrictions, while demand takes its sweet time to recover.
By Julianne Geiger for Oilprice.com
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