Capital Economics: Oil prices to remain low for at least next couple of months

Oil&Gas Materials 14 March 2020 09:23 (UTC +04:00)

BAKU, Azerbaijan, March 14

By Leman Zeynalova - Trend:

Oil prices are expected to remain low for at least the next couple of months,Trend reports with reference to UK-based Capital Economics research and consulting company.

“Oil prices crashed by around 20 percent this week owing to concerns about the coronavirus-related economic disruption, the plummeting of other risky assets – such as US equity markets – and pledges by Saudi Arabia and the UAE to increase oil supply,” said the company.

Against this backdrop, Capital Economics now expects OPEC to raise output and for the oil market to be in a large surplus for most of this year. “As a result, we think that oil prices will remain low for at least the next couple of months.”

Meanwhile, the price of US natural gas (Henry Hub) rose as investors started to price in the possibility that supply could fall, reads the report released by Capital Economics.

“Much natural gas in the US is produced as a by-product of oil production and the recent plunge in oil prices will force some US shale firms to curtail oil output and in turn gas too (4). That said, we don’t expect Henry Hub prices to continuing rising in the coming months as the disruption created by the coronavirus will weigh heavily on demand,” reads the report.

“Commodity prices tumbled this week, echoing moves in other financial markets. Oil was among the worst performers as Saudi Arabia and Russia announced that they will ramp up output from April, after OPEC+ abandoned its efforts to balance the oil market last week. Together with the loss of demand resulting from measures to slow the spread of COVID-19, we expect the oil market to be significantly oversupplied over the next few months. The same is true of industrial metals, though supply cutbacks in China will generally prevent these surpluses from growing too large,” said the company.

Next week, the focus will remain on further government containment or stimulus measures. “We expect the Fed to cut its policy rate by at least 50bps and formally launch another round of QE at its meeting this week.”

However, this will do little to lift commodity demand while measures to contain the virus remain in place, according to the company.


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