‘The worst is behind us’: Analysts see continued recovery for global oil markets

Must Read

South America’s emerging deepwater oil giants pledge strategic alliance

Following discussions over the last 24-hours between the newly elected Presidents of Guyana and Suriname, the two leaders announced...

Stena Carron set to arrive at Tanager-1 today as search for more oil in Guyana continues

The hunt for more hydrocarbons continues offshore Guyana, this time outside of the prolific Stabroek Block, as ExxonMobil prepares...

Liza and Kwaskwasi are giants in the prolific Guyana-Suriname basin

The Guyana-Suriname basin has been the subject of much discussion since US oil major ExxonMobil made its world class...
OilNOW
OilNow is an online-based Information and Resource Centre which serves to complement the work of all stakeholders in the oil and gas sector in Guyana.

After reaching historic lows in April, global oil prices could continue to chop higher in the coming months as COVID-19 shelter-in-place restrictions begin to lift, S&P Global Platts said in a recent report .

Speaking at the Global Executive Petroleum Virtual Conference hosted by S&P Global Platts on June 24, analysts pointed to reduced global supply and the faster-than-expected return of demand keeping both Brent and West Texas Intermediate crude prices on an upward trajectory. Most analysts see prices stabilizing between $50 per barrel and $60/bbl by year’s end, still shy of pre-pandemic levels.

“We think the worst is behind us,” Neil Atkinson, head of oil markets at the Paris-based International Energy Agency, said at the conference. “The market is gradually adjusting.”

WTI crude futures on the New York Mercantile Exchange have surged more than $75 since the May contract settled at negative $37.63/bbl on April 20, with prices roaring back to near $40/bbl in a matter of weeks as U.S. producers quickly shut-in output. On June 22, WTI front-month futures settled above $40 per barrel for the first time in more than three months but pulled back June 24, when the August delivery WTI contract settled at $38.01/bbl.

In a recent survey of producers in the Dallas Federal Reserve’s 11th district — which includes Texas, northern Louisiana and southern New Mexico — about half the respondents said prices at or below $40/bbl were sufficient to restart shut-in horizontal wells. A quarter said they would need to see prices of $46/bbl or higher to restart.

Prices for WTI and Brent crude futures generally run close to the same levels, but the spread between them widened dramatically in April when WTI turned negative for the first time ever, highlighting the fear that storage at Cushing, Okla., the delivery point for NYMEX WTI futures, was nearing capacity.

“Delivery of Brent is seaborne, not landlocked like WTI,” ICE Futures Europe President Stuart Williams said during the conference. With the ability to charter vessels, “the available storage for Brent is much broader,” he said.

As a result, Brent crude oil prices are less susceptible to localized storage and pipeline issues like WTI, Williams said.

Analysts largely agree that WTI prices are unlikely to return to negative territory following their historic collapse in April. Instead, the recovery in Brent and WTI oil prices will likely continue, assuming inventories continue to be drawn down, a second wave of COVID-19 can be averted, petroleum demand continues to ramp higher, and countries comply with OPEC+ output cuts.

Citi’s global head of commodities research, Ed Morse, said at the June 24 conference that in the bank’s base case scenario, WTI oil prices should average $45/bbl in the fourth quarter before gradually rising to an average of $57/bbl by the fourth quarter of 2021. Citi expects Brent crude prices will average $48/bbl in the fourth quarter of this year and increase to an average of $61/bbl in the final quarter of 2021. Brent crude oil prices settled at $40.31/bbl on June 24.

In early June, OPEC and its allies extended production cuts by one month, or through July. Absent Mexico, which will no longer reduce its output by 100,000 bbl/d, the other producing countries approved the rollover of their 9.6 million bbl/d production cut accord. The cuts, originally 9.7 million bbl/d, including Mexico, had been scheduled to taper to 7.7 million bbl/d in July through the rest of the year.

Atkinson said global oil supply is anticipated to decline by a record 7 million bbl/d in 2020 on the back of the organized cuts from OPEC+, which were supplemented by economically driven reductions by the U.S. and other producers.

“As demand gradually recovers, and supply falls sharply, led by OPEC+ cuts and market-driven shut-ins, global inventories could draw at record rates in Q3 after record builds in Q2,” Morse said.

For 2020, global oil demand could decrease by about 8 million bbl/d, Atkinson said. Oil demand is then expected to grow by 5.7 million bbl/d in 2021, he said.

S&P Global Platts

- Advertisement -

Latest News

South America’s emerging deepwater oil giants pledge strategic alliance

Following discussions over the last 24-hours between the newly elected Presidents of Guyana and Suriname, the two leaders announced...

Liza and Kwaskwasi are giants in the prolific Guyana-Suriname basin

The Guyana-Suriname basin has been the subject of much discussion since US oil major ExxonMobil made its world class Liza discovery in 2015 at...

Stena Carron set to arrive at Tanager-1 today as search for more oil in Guyana continues

The hunt for more hydrocarbons continues offshore Guyana, this time outside of the prolific Stabroek Block, as ExxonMobil prepares to conduct a new drill...

Principles for natural gas agreement with the Government of Guyana

The Guyanese government under the contract is likely to have its own share of profit hydrocarbons to lift, including natural gas. A state-owned oil...

Oil giants’ production cuts come to 1 million bpd as they post massive write-downs

(Reuters) - The world’s five largest oil companies collectively cut the value of their assets by nearly $50 billion in the second quarter, and...

More Articles Like This