Oil Shows Signs of COVID Recovery
Jun 07 2020 Read 306 Times
The oil industry is starting to show early signs of recovery, with prices hovering just below US$40 as the market responds to the latest round of OPEC cuts. On Saturday, the cartel announced plans to extend its existing production cut of 9.7 million barrels per day, with OPEC president Mohamed Arkab asserting that "despite the progress achieved to date, we cannot afford to rest on our laurels.”
Buoyant analysts hope for US$70 a barrel recovery
Some industry experts are extremely buoyant, predicting drastic production cuts in the United States could see WTI prices jump to 90% to US$70 a barrel by the end of the year. In an interview with Markets Insider, CEO of Canary Drilling Services Dan Eberhart says the sudden cuts could trigger a “mini-supply shock” with the potential to push up prices on the US market. When questioned on the OPEC embargo, Eberhart said compliance was not perfect in May and expects it will continue to slip moving forward.
“I see a case for West Texas Intermediate to approach $70 a barrel this fall,” Eberhart told Markets Insider.
American gas prices on the rise
Demand is another major factor that will influence the oil price recovery. With restrictions starting to lift around the world, demand for oil is expected to increase. In China, oil demand has already recovered to around 90% of its pre-coronavirus levels. Other major economies such as the United States and India are also showing signs of recovery. Already, American gas prices are starting to rise, with the national average increasing by more than 20 US cents over the past month. The EIA has also reported significant growth in gasoline demand over the past few weeks.
Demand and oversupply could hinder recovery
Other analysts aren’t quite as optimistic, stressing that for oil prices to rise to pre-coronavirus levels, global demand will also have to recover. There’s also the issue of chronic oversupply due to high crude inventories stockpiled over the past few months. Scott Sheffield, CEO at Pioneer Natural Resources Company says a full recovery could take years and warns that the rapid “reopening” of global economies could lead to market stagnation. Ultimately, this will prevent a holistic market recovery until as late as 2023.
As the world emerges from the COVID-19 pandemic the impacts on the oil and gas market will become clearer. To find out more about the latest industry developments don’t miss ‘VICI International AG - News and New Products for 2020’ which offers insight from Stephen B Harrison on behalf of sbh4 GmbH.
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