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What happens to oil prices if new OPEC+ deal can’t be agreed?

Oil&Gas Materials 7 April 2020 09:32 (UTC +04:00)
What happens to oil prices if new OPEC+ deal can’t be agreed?

BAKU, Azerbaijan, April 7

By Leman Zeynalova - Trend:

Unless an OPEC+ deal can be brokered (and soon), oil prices look set for renewed and deep declines this quarter, Trend reports citing Fitch Solutions Country Risk and Industry Research (a unit of Fitch Group).

Q2 likely marks the nadir for global oil markets, after which Covid-19 containment measures should be rolled back, opening the door on a recovery in demand, the company said in its report. “That said, the timing, pace and strength of such a recovery is by no means assured and, in our view, new social behaviours will likely prove sticky.”

Absent a deal, Fitch Solutions expects Saudi Arabia to stay the course, allowing low prices to clear the market of cost producers.

“Ultimately, though, sharp production declines elsewhere, coupled with a rundown of its domestic reserves, will induce the kingdom to pair back on its production. It is unlikely that the market can absorb the 12.3mn b/d Aramco aims to supply in April over any sustained basis and so the company may have to withdraw some barrels over the coming months,” reads the report.

As production falls else, the company sees space for the kingdom to wind down its output without sacrificing market share.

“However, a large and more sustained uptick in prices cannot occur as long as Saudi Arabia officially holds to its strategy of maximum market share. Our current forecast factors in a full reversal in policy within H221, although the timing is obviously subject to considerable uncertainty. Under this scenario we see an annual average price for Brent of USD30.0/ bbl in 2020, rising to USD36.0/bbl in 2021,” reads the report.

“Our current forecast assumes that Brent will recover into the USD50.0-60.0/bbl range from 2022-23, although the balance of risk to this forecast likely lies more to the upside than the down. However, we believe substantially stronger demand dynamics and sharper-than-expected production declines would like be needed, in order to drive prices sustainably above USD60.0/bbl.”

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Follow the author on Twitter: @Lyaman_Zeyn

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