BAKU, Azerbaijan, April 24
By Leman Zeynalova – Trend:
Oil prices are expected to remain low over the coming months as coronavirus containment measures continue to weigh heavily on global economic activity and oil demand, Trend reports citing UK-based Capital Economics research and consulting company.
“However, we think that prices will rise by the end of this year as the market surplus declines,” said the company.
Capital Economics recalled that oil prices rose at the start of 2020 owing to an easing of US-China trade tensions and rising geopolitical frictions between the US and Iran.
“However, this proved short-lived: prices have since crashed, with the price of WTI even briefly turning negative in mid-April , in part due to concerns about a lack of available storage. Weak demand and a lack of storage space – particularly at Cushing, Oklahoma where WTI is settled – will continue to weigh on oil prices for a few more months. But, by the second half of the year, we think that prices will recover as demand starts to pick up once the virus-related restrictions are lifted,” reads the report.
At the same time, the company said that supply should be lower, particularly from those countries outside of OPEC+ where the cost of production is below the current price of oil.
“As a result, the market may move into a deficit even with our assumption of only partial OPEC compliance with quotas. Our end-2020 forecast for the price of both Brent and WTI is $45 per barrel. Further ahead, we think that the price of WTI (the US benchmark) will trade at a small premium to Brent (the more global benchmark) from mid-2021. US shale production is likely to fall sharply given the prevailing low prices. By contrast, most countries within OPEC+ can withstand lower oil prices for some time,” reads the report.
Turning to natural gas, Capital Economics said the coronavirus has dealt a heavy blow to demand, with prices drifting lower in recent weeks.
“That said, prices had already been on a downward trajectory as surging supply and a mild northern hemisphere winter weighed on prices in Europe and the US. With European storage capacity utilisation much higher than usual for this time of year, the price of European gas is likely to remain subdued for the rest of the year. By contrast, the price of US gas should start to pick up from the summer due to a recovery in demand and a fall in US shale gas supply,” reads the report.
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