Oil prices to fall sharply if OPEC leaves quotas unchanged

Oil prices to fall sharply if OPEC leaves quotas unchanged

BAKU, Azerbaijan, Feb.21

By Leman Zeynalova - Trend:

Oil prices continued to recoup lost ground over the last week, although the price of Brent is still 10 percent lower than a month ago, Trend reports citing Capital Economic, UK-based research and consulting company.

“Prices are largely being driven by virus-related news, which we expect to remain the case over the next few weeks. It appears that OPEC+ is going to wait until its scheduled meeting in early March to discuss output policy. For now, Russia seems to be dragging its heels on deeper cuts. If OPEC+ decides to leave current production quotas unchanged, we would expect the oil price to fall sharply,” said the company.

Elsewhere, the weather took centre stage in natural gas markets this week, with the price of US natural gas (Henry Hub) benefitting from forecasts of colder US weather, reads the report released by Capital Economics.

“Although we think that all the regional gas prices (US, EU & Asia) will be lower on average this year owing to abundant supply, we expect Henry Hub to be a relative outperformer. Strong growth in US exports and slower growth in US production should offer some support to prices,” said the company.

In general, as Capital Economics said, industrial commodity prices trod water this week as investors struggled to assess the extent of the economic fallout from COVID-19.

“That said, the lingering sense of uncertainty put wind in the sails of precious metals prices. It will be difficult to predict the direction of commodities prices until we have a better handle on the scale and duration of the Wuhan virus. However, if the epidemic can be contained over the next few weeks, we think that commodities prices would bounce back fairly quickly,” reads the report.

The company predicts that next week, commodities prices will continue to take their cue from developments regarding the coronavirus. “Indeed, if economic activity in China is clearly not rebounding by the end of February, we will be reviewing our commodity demand and price forecasts. Otherwise, we expect Germany’s Ifo Business Climate index (published Monday) to trend down, which may soften industrial metals prices.”

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