The global oil market ended July with the Brent crude index growing 2.5 percent this month and the WTI recording 2.3 percent growth this month.
This is reportedly the fourth consecutive month of Brent growth and the third consecutive month of WWI ascent; Price growth owed largely due to the extension of OPEC production reduction policies during the Corona outbreak.
However, the most important component of global oil price growth in a period when demand has experienced an unprecedented decline due to limitations due to the corona outbreak will be eliminated from today.
The “historic OPEC Plus production cut of 9.7 million barrels”, which was extended to maintain market equilibrium in July, expires today, with OPEC Plus agreeing to send about 1.5 million barrels of crude oil to the world market.
*** Price trend of two global crude oil indices
However, expectations are rising from the price trend of the two global crude oil indices until the end of the year.
A look at the trend of corona outbreaks around the world shows that despite the spread of the virus, governments are not enforcing broad restrictions as before.
This could mean oil coming out of the Corona virus shock and a relative improvement in demand;
This issue was also reflected in the latest report of the International Energy Agency in the form of increasing the organization’s forecast of demand growth this year (compared to the previous report of the organization).
Despite this change in attitudes among governments, given that the Corona pandemic has not yet gripped many of the world’s major economies, oil demand cannot be expected to recover rapidly in the face of new supply coming to market this month. .
For this reason, experts predict that August will put pressure on prices for the global oil market, but by the end of this month, prices will enter an upward channel.
*** The market reaction to the return of 1.5 million barrels
According to Bloomberg, the continuation of the decline of 9.7 million barrels of oil in July (which according to the agreement should reach the range of seven million barrels per day in June) by OPEC and its allies helped oil to return prices from below zero in April. .
OPEC Plus has provided this service to the market while now with the cut of this aid and the production entering the range of 7 million barrels per day, the market is in a dangerous period because at the same time with the widespread outbreak of Corona virus in the world, OPEC Plus will increase.
The prevalence of the corona, especially in the United States as the world’s largest economy, has complicated matters.
US crude futures fell 3.3 percent on Thursday. Although this drop in yesterday’s trading improved, the news that caused this decrease can still not be ignored.
The news was that the US economy was suffering from a deep recession that had been unprecedented since the 1940s following the outbreak of the Corona virus.
*** Return of one million barrels of OPEC Plus production
The release of such news, along with the return of part of OPEC Plus products, sends a signal of falling prices to the market.
But this signal will be short-lived.
This is what Iman Naseri, the head of the Middle East section of the FGE Oil and Gas Consulting Institute, also mentions.
According to this expert, the return of one million barrels of OPEC Plus products to the market will definitely put downward pressure on prices.
But other than that, for fundamental reasons, prices were already expected to fall in August.
The reason was that the process of depletion of reserves made in April and May was expected to slow down.
According to Naseri, one of the reasons for the slowdown in the depletion of these reserves is the return of the same one million barrels, and the slowdown in demand also has an effect.
*** The effect of the second corona wave on the oil market
The expert predicts that in the coming weeks, oil is likely to fall below $ 40 to $ 35, but with the start of the fall season and the return of demand, as well as a possible decline in the corona, prices will move back to $ 45 and up to It will probably reach $ 50 by the end of the year.
However, this trend will largely depend on demand growth and the second wave of the corona. Oil companies, such as the FGE, do not currently see the second wave as putting pressure on demand. Because in the second wave, although the number of casualties will increase, the issue that is important for demand is the implementation of global quarantines by governments, which does not seem to be pursued as seriously as the second wave.
Thus, although published statistics show that the number of coronary heart disease patients in some parts of the world, including the United States, has slowed down, governments’ efforts to enforce global restrictions that have led to declining demand are as serious as in previous months. It is not possible. That is why expectations are for an improvement in the oil market, albeit a fragile one.
*** Improving oil price outlook
The latest Reuters poll of 43 analysts and economists also shows that their forecasts for the future of Brent and US WTI crude oil prices have improved slightly.
The poll shows that analysts expect the Brent crude oil index to average $ 41.50 a barrel in 2020. This is slightly higher than the previous month’s $ 40/41 forecast.
According to Reuters, the average price for 2021 is expected to be $ 49.85 per barrel.
The outlook for the US crude oil index for 2020 also increased from the previous forecast of $ 36.10 per barrel to $ 37.51 per barrel.
The International Energy Agency recently increased its forecast for crude oil demand in 2020 to 92.1 million barrels per day.
After Brent crude fell to its lowest level in 20 years in April, OPEC Plus helped cut production by a month more than expected a month after OPEC Plus cut production by 9.7 million barrels a day, according to Reuters. Found.
*** Return of shale to production
It remains to be seen, however, how the market will react to the return of US shale producers.
Accordingly, while OPEC Plus plans to add 1.5 million barrels per day to production this month (August), US shale oil producers have also decided to return production to the production cycle.
ConocoPhillips, one of the largest independent producers of shale oil in the United States, has recently announced plans to increase production.
Other manufacturers in the United States have announced plans to return some of their products. The price recovery is a clear opportunity for US production to return to increased shale production.
According to the report, a barrel of Brent crude oil in yesterday’s trading and at the time of writing (17:15 Tehran time), with a growth of 34 cents reached $ 43.28 per barrel.
US crude was up 36 cents at $ 40.28 a barrel. Thus, although the corona oil market is not expected to fully recover in the near future, its relative recovery cannot be ignored.
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