- Crude oil prices have been recovering over a slight indication of demand from China and hopes for a recovery in demand as lockdown and travel restrictions ease across the globe.
- The Brent crude oil prices have doubled post tanking to recent lows, the rally seems to be halting around the present level of USD 34.50 per barrel as market awaits further sentiment boosters.
- Amidst of halted rally, the United States Energy Information Administration (or EIA) projects the Brent crude oil price to average USD 34 per barrel in 2020.
- Furthermore, the organisation is out with forecasts related to demand and supply, and one should get well acquainted with that, as it could assist in developing expectation from the market related to volatility, future expectation, and overall direction of the oil market.
Crude oil prices are rising on the anticipation of the supply crunch instigated by the global oil leaders, including Saudi, Russia, and the United States, and in the status quo, most of the oil-exporting countries have substantially trimmed their production in order to support the price.
However, despite a lot of coverage and news of the production cut, the oil minor recovery rally, which started from the level of USD 15.98 per barrel (intraday low on 22 April 2020) to reach at USD 36.98 per barrel (intraday high on 21 May 2020), a 130 per cent up move, now seems to have halted as market awaits further sentiment boosters.
To Know More, Do Read: Supply Curtails Card Boosting Oil Sentiments While Market Awaits NPC Stimulus in China
While the uncertainty in the oil market yet prevails, the United States Energy Information Administration (or EIA) is out with its recent forecasts concerning the oil market and its price, which one should get acquainted with to fathom the volatility, future expectation, and overall direction, while navigating and exploring the investment case in oil.
EIA Anticipates the Price to Average USD 34 per barrel in 2020
EIA assesses that the Brent crude oil prices, which averaged USD 18 per barrel in April, down by USD 13 per barrel against the previous month would average at USD 34 per barrel in 2020, down by ~ 46.87 per cent against the previous year average price of USD 64 a barrel.
Furthermore, the organisation anticipates the Brent crude oil price would average USD 23 per barrel during the second quarter of the year 2020 post firming up, to hit USD 32 per barrel mark during the second half of the year.
The same prices are estimated to further surge by ~ 41.17 per cent to average at USD 48 per barrel in 2021, revised by USD 2 per barrel (up) from the previous forecast average price of USD 46 per barrel in April 2020.
On the demand counter, EIA anticipates the global petroleum and liquid fuels consumption to average at 94.1 million barrels per day during the first quarter of the year, which is now down by 5.8 million barrels per day against the previous estimation.
In 2020, the overall demand of petroleum and liquid fuels is projected to stand at 92.6 million barrels per day, down by 8.04 per cent against the previous year. However, in 2021, the overall demand is estimated to increase by 7.0 million barrels per day to stand at 99.6 million barrels per day.
Over the weak demand and despite a global drive to curtail the production, the global liquid fuels inventories is expected by EIA to grow at an average of 2.6 million barrels per day in 2020, post marking a reduction of 0.2 million barrels per day in 2019.
Furthermore, inventories of global liquid fuels are further determined to surge at a rate of 6.6 million barrels per day during the first quarter of the year while inching further at the rate of 11.5 million barrels per day during the second quarter.
However, the organisation also forecast that from the third quarter of the year 2020, firmer demand growth coupled with slower supply growth would contribute to global oil inventory draws, which would further prompt the global liquid fuel inventories to fall by 1.9 million barrels per day in 2021.
The United States Fuel Consumption and Production to Decline
The United States fuel consumption is projected to decline significantly during the second quarter of the year before gradually dissipating over the next 18 months. EIA projects the gasoline consumption to plunge by 1.6 million barrels per day to average at 7.0 million barrels per day during the 2nd quarter before steadily increasing to 8.7 million barrels per day during the 2nd half of 2020.
Likewise, the consumption of jet fuel, distillate fuel, motor gasoline consumption is also projected to follow the same trend.
On the production counter, EIA anticipates that the domestic crude oil production across the United States would plunge by 0.5 million barrels per day to stand at 11.7 million barrels per day in 2020 while declining further by 0.8 million barrels per day to stand at 10.9 million barrels per day in 2021.
OPEC and China Pull Chairs To Aim Oil Market Stability
The global oil demand and the current market sentiments are currently relying on China’s oil consumption and the stimulus of the National People Congress (or NPC), and while that is evident as in the status quo, the demand rise in China had supported the oil price, the red dragons are working closely with OPEC to bring stability in the oil market.
In the recent event, a delegation from China held a meeting with OPEC Secretary-General- HE Mohammad Sanusi Barkindo, and the meeting reflected over the impact of the COVID-19 outbreak on the global oil demand and the market, including the oil market of China.
As per the OPEC sources, China also proposed solutions related to the optimisation of the oil and gas trade system.
“…the pandemic has provided the opportunity to further strengthen the relationship between OPEC and China, and proven that the forces of globalisation are irreversible,”- Said Secretary-General Barkindo
Venezuela Joins the Crusade Against the Supply Glut
In the current state of affairs, the large and major oil producers across the globe are taking a toll on the production to trim the supply chain and bring balance to the demand and supply dynamics, and amidst that Petroleos de Venezuela- a state-owned oil company in Venezuela decided to cut the crude oil output across several locations.
Apart from that, the overall oil industry at Venezuela is on a squeeze in the wake of lower oil prices, which had prompted many companies to considerably reduce the oil output, leading to a sharp decline in the overall export, which was already in pressure after Russia-based Rosneft stopped purchasing the oil from state-owned PDVSA in the wake of U.S. imposed sanctions on the country.
There is no investor left unperturbed with the ongoing trade conflicts between US-China and the devastating bushfire in Australia.
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