Categories: BusinessCommodities

Brent crude could double by 4Q20 despite slow growth

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International standard Brent crude is closely being watched as oil prices begin to rally anew. This is after a shaky start to the week after oil prices plunged to a historic all-time low.

Brent crude gained 10% on April 29, settling at US$22.54 [AU$34.38] on Wednesday afternoon. Meanwhile, the Brent weighted average had smaller gains, going up by 0.15% to settle at $20.

Volatile market still expected as pandemic continues

The market’s volatility is slowly starting to normalize from the negative drop the previous week.

CNBC reports that this is mostly due to a smaller inventory increase than expected, which leads many to think that the worst is over.

Analysts are warning people that the overall demand for oil could fall to below 30 million barrels per day in the second quarter, however.

This is despite many global economies relaxing quarantine regulations brought about by the coronavirus pandemic.

Slight recoveries in May or June of this year will be incremental, as governments shift their focus from purchasing to liquidation of their current stockpiles of crude.

Market shock as demand for oil increases in colder months

Business Insider reports that as situations normalize into the third and fourth quarters of the year, the risk shifts from an oversupply to a lack of supplies as demand for crude increases.

Mark Haefele, Chief Investment Officer of investment banking firm UBS, said:

“Expect [oil prices] to move toward balance next quarter and become under-supplied in 4Q this year as lockdown restrictions are eased and oil demand picks up.”

Should the market go into scarcity in 4Q20, the price of Brent crude could go up by about 110% of its current price. This means that oil price per barrel could hit $40 at around the time when North America starts moving into the colder months.

This could increase the demand for heating and could drive the price of crude even higher.

Hedging bets, oil to recover by Q4

This doesn’t mean that the risk of oil prices hitting negative is over, however.

Oil Price says that the speed at which oil producers can reduce production can determine whether oil prices will stabilize in the short term.

Oil producers have pledged to reduce the supply of oil starting next month, and some have even begun to shutter some of their rigs ahead of the May 1 starting date. However, oil producers tend to lose more with a full shutdown as opposed to a reduction in pricing.

So while the production might go down in the next few months, it remains to be seen just by how much the decrease will be.

Storage is still an issue for the oversupply, and while recent events indicate that the oversupply problem might not be as big of a problem as previously thought, miscalculations on that end could negatively affect international prices again.

Meanwhile, both the IEC and OPEC are somewhat confident that oil will recover into the latter quarters of the year.

Images courtesy of Conrad Marshall/Pexels, Alexander Bobrov/Pexels

Martin Cruz

Writer and independent business owner who loves fiction, food, felines, and the F-cleft.

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