*US oil rigs in operation came in at 189 up from last weeks 183
*A collapse as in March - April will probably be managed to be avoided
Brent oil prices lost almost 15% from the start of the year and dropped below $40 per barrel in early October. November WTI crude oil futures plunged at $36.63 a barrel and Brent at $38.80 on Friday intraday, in response to Trump’s positive COVID-19 diagnosis. WTI crude oil has been a casualty from last week’s COVID-19-driven news cycle, losing more than 6%. The Baker-Hughes Rig Count has been released to the public.
US oil rigs in operation came in at 189, up six from last week’s figure of 183. The gain is being widely attributed to WTI returning to $40 per barrel. Prices are driven by the epidemiological recurrence, prompting countries across the globe to reinstate lockdown measures to a certain degree. Nevertheless, the spring scenario with oil prices falling below $25 per barrel is unlikely, analysts say. This is owing to several reasons, including the strong reduction of oil production globally.
China, the strongest trigger for demand plummeting, does not demonstrate an increase in the sickness rate now. The factor of China will not work now, even considering imports slowdown. They managed to procure oil during the low prices period, the analyst says. If the scenario of abrupt demand and prices drop is implemented, OPEC+ will be able to respond quicker and adjust supplies.
Therefore, such a collapse as in March - April will probably be managed to be avoided, even if the epidemiological situation continues worsening. Large-scale lockdowns will be probably avoided this time because governments will endeavor to use pinpoint measures. Crude oil remains challenged by weaker fundamentals as the COVID-19 pandemic continues to slow the recovery in demand, while at the same time OPEC+ is struggling to keep production down following the resumption of exports from Libya.
Overall, however oil is doing reasonably well and probably could have traded somewhat lower if it wasn’t for the support coming from a continued slowdown in US oil production, Ole Hansen from Saxo Bank says. Saxo Bank expects Brent oil will be traded in the fourth quarter of 2020 within the range of $38 to $48 per barrel. The oil price may drop even to $36 a barrel. Experts do not expect the demand and prices recovery earlier than 2021 or 2022.
Oil prices are going to remain low until a vaccine is made widely available, something that may easily take another 12 months. On that basis a meaningful recovery in the price of oil and demand may not occur. The US, Israel and the UAE agreed to cooperate in the fields of oil, gas and renewables among other energy sectors, following the signing of a peace agreement between Israel and the UAE in September.
(Disclaimer: This analysis is only for educational purpose and is not and must not be construed as investment advice. It is analysis based purely on economic theory and empirical evidence. Readers are requested to kindly consider their own view first, before taking any position.) Date: 5-10-2020