Outlook for oil market remains bleak in near-term

Oil&Gas Materials 28 March 2020 10:03 (UTC +04:00)
Outlook for oil market remains bleak in near-term

BAKU, Azerbaijan, March 28

By Leman Zeynalova - Trend:

In the near-term, the outlook for the oil market remains bleak, Trend reports citing Capital Economics, UK-based research and consulting company.

“After picking up slightly at the beginning of the week, oil prices have since eased off again, with Brent and WTI finishing the week down by around 9 percent and 4 percent, respectively. The sharp decline in global oil demand that we have pencilled in for Q2, combined with the probable surge in OPEC+ supply from next month, will keep a lid on prices in the coming months,” said the company.

Meanwhile, US natural gas prices have held up relatively well since the outbreak of the coronavirus, according to Capital Economics.

The consulting company believes that this is unusual, particularly given the unseasonably warm winter in the US.

“We suspect that prices are being supported by the prospect of a drop-off in supply later this year. Around 60 percent of US gas production is from shale and another 15 percent is “associated gas” (gas withdrawn from oil wells). Given the high costs of most shale producers and low oil prices, we think US gas production will fall over the next six months,” reads the analysis.

In general, the company said that commodity prices are still highly volatile, but they have remained in the doldrums this week despite the rally in other risky assets, notably equities.

“We have argued for some time that until the virus-containment measures are lifted, looser monetary and fiscal policy is unlikely to give a lift to commodity demand. In a similar vein, a raft of announcements this week of cutbacks at mines and metal producers is unlikely to be enough to prevent further falls in prices, given the moribund state of demand. We think the same holds true in the oil market if OPEC and its allies were to manage to mend fences and agree to cut output,” reads the analysis.

Turning to next week, it goes without saying that the spread of the virus will remain the markets’ focus, said Capital Economics.

“But over the next few weeks, economic data releases will become more relevant as they will increasingly cover the period of virus-containment measures. Early next week, China’s March PMI readings will give us some indication of how much of the economy remained offline this month.”


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