The oil market pushed off the bottom: how long to wait for price recovery?

US, WASHINGTON (ORDO NEWS) — Oil prices pushed off the bottom. In the morning, the surrender of the “bulls” continued, the cost of a barrel of Brent mix fell below $ 16 per barrel, these are the minimum marks since 1998.

However, with the opening of trading in Europe, the situation began to improve, and quotes went up. As of 17:30 UTC, Brent is adding almost 10%, and WTI – 14.5%, they cost $ 21.3 and $ 14.9, respectively.

Apparently, speculators again began to play on the rise, expecting that demand will recover and production decline.

True, Trump’s statement that the United States will destroy Iran’s ships chasing American ships also played a role in the mood. The market perceived this as a threat of war, however, most likely, this is only a speculative reason.

More serious corrections to the course of trading were made by statistics from the US Department of Energy. Reserves are not being paid so much attention now, and it is so clear that they are prohibitive, although growth was within the forecast and lower than a week ago – 15.02 million barrels, but production dynamics is a key factor.

It has been declining in the States for the third week in a row, although not as much as one might have expected. Now the United States produces 12.2 million barrels per day – this is the minimum since June 2019 and 700 thousand barrels below the March peak.

The number of active drilling rigs is falling much more rapidly. Now there are only 438 of them, although until recently there were almost twice as many.

However, despite the local rally, the market situation remains difficult. Fundamental factors prevail; a comment for Vesti was given by Kirill Kononov, senior analyst at the Gazprombank Economic Forecasting Center:

“This year, the decrease in demand for oil caused by quarantines due to coronavirus and the subsequent decline in economic activity will amount to 5-9 million barrels per day in average annual terms (up to 15-25 million barrels per day in April-May, at the peak of quarantine) . If all parties to the OPEC + agreement follow the parameters of the agreement by the end of the year in full, their production will decrease by about 5 million barrels per day compared to 2019.

According to current plans, another 1-3 million barrels per day should be reduced in developed countries (primarily in the USA). Of the remaining 1-3 million barrels per day of surplus in stocks, it will be possible to place no more than 1 million barrels per day. The surplus of oil production should become the highest in history and should lead to an additional significant reduction in production.

Even if the market is balanced by the end of the year, a large volume of reserves acquired at extremely low prices, as well as a slow recovery in demand will lead to the fact that the global oil industry will reduce production in the most expensive fields over the next year.”

Anna Butko, an analyst for the oil and gas sector of ATON, does not believe in a quick price recovery either. She believes that balancing the market will require a long period of time, and excess supply will put pressure on prices in the foreseeable future:

“The current market situation is very difficult. Now it is expected that April and May may be the most difficult months, given that most economies are still in quarantine (it is difficult to assess the decline in demand, but the market agrees that the decline may reach 20-30% +), and the organized reduction in OPEC ++ production has not yet begun, which leads to rapid filling of oil storage and overstocking in the market.

Although, according to the OPEC + agreement, production decline will occur from May 1, it seems to us that I need the market there is time to check whether countries are able to reduce in the agreed volumes and feel the result.An important factor for the market will be the dynamics of decline in production in countries not directly involved in the agreement (it is expected that the decline in production in the G20 countries will be about 4 million barrels per day). In the short term, the market may also support the decision of countries, especially the United States, to buy oil in strategic reserves. At the same time, one does not have to wait for a quick price recovery, given the scale of overstock.”


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