BAKU, Azerbaijan, June 26
By Leman Zeynalova – Trend:
Constrained OPEC+ supply will not be enough to offset weaker demand, Trend reports with reference to UK-based Capital Economics research and consulting company.
Therefore, the company is sticking to its price forecasts for both Brent and WTI to reach just $45 per barrel by the end of this year.
Capital Economics recalled that on the supply side, sharp output cuts by OPEC member states since May have helped to lessen some of the oversupply which plagued the global market back in March and April.” In May – the first month of the new quota – aggregate OPEC output fell by around 6.3m bpd compared to the previous month, with broadly good compliance among members.”
It is likely that a lack of storage and low oil prices removed much of the incentive for members to overproduce, said the company.
“However, we suspect that the relatively high rate of compliance so far will not last: the slight easing in storage pressures and sharp pick-up in oil prices may entice some member states to start to ramp up supply once again. Altogether, we expect global supply to contract by around 10% y/y in Q3 and Q4 to 91m and 92m bpd, respectively,” said Capital Economics.
The company believes that the near-term outlook for oil prices is fairly gloomy.
“The huge contraction in global production will be the primary factor supporting prices for the remainder of this year, and is likely to push the oil market into a small deficit from Q3 onwards. But this does not mean that there will be anything approaching a supply shortage: the huge build in stocks after global demand collapsed in the first half of this year means that there will be more than enough oil to meet demand. As a result, we do not see a significant upside for prices this year,” said Capital Economics.
The company believes that much depends on the possibility of a ‘second wave’ of infections and the extent of behavioural change prompted by the virus. “On the other hand, faster-than-expected growth in oil-intensive sectors or a permanent loss of US production brought about by persistent low prices present an upside risk.”
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