India, the world’s third-largest oil importer, is the latest coronavirus hotspot. There has been a record high number of new daily coronavirus cases recently, a statistic that has lowered oil demand and depressed oil prices.
OPEC +, for its own needs, intervened in the oil market on the supply side of the equation to compensate for the slump in oil demand from the pandemic. And although the Group has been successful in controlling oil production to prevent excess oil inventories from rising before the market fully recovered, the company has already managed to regain control of oil production. But counting India’s booming cases has prevented oil prices from recovering faster.
This has put more pressure on OPEC + in its operation to meet market expectations. But there is no doubt that the momentum of the oil market will change. Indeed, oil prices have recovered somewhat in recent months, with most oil experts and analysts looking at the trend to continue.
The question is not whether the market will improve or not. The question is how quickly will it improve and where will the recovery be maximum?
The European premiere added another unknown element to the oil price mixture. A month ago, Europe renewed several restrictions to slow the recovery in oil prices. But for now, as India is at the time of the worst COVID-19 outbreak since the pandemic began, Europe is ready to lift the block. EU officials made a proposal this week to ease summer travel restrictions for 27 countries.This will increase demand for jet fuel, a key component of crude demand.
In the US, cases of COVID-19 have also decreased, while the number of people receiving the vaccine has increased. As a result, many states in the United States, including New York, are easing restrictions, all of which will have a profound effect on the price of crude oil. Related: Asian LNG buyers are getting ready for a harsh winter
But that doesn’t mean all analysts agree on what this has to do with oil demand, let alone the price of oil.
For starters, the IEA adjusted its oil demand outlook for the year on April 14, based on estimates for oil demand to rise 5.7 million bpd this year to 96.7 million bpd. The reason for the increase was due to a rise in IEA’s oil demand forecasts for the United States and China, two of the world’s largest oil importers.
On April 6, the EIA saw global oil demand at 97.7 million bpd this year. Compared to Brent prices near $ 65 per barrel in March, the EIA did not see much of Brent price movement, estimated at $ 65 / barrel in Q2 2021, $ 61 per barrel in H2 2021, and worse at $ 60 per barrel. Barrel in 2022.
Less than a week ago, Rystad Energy cut its April oil demand by nearly 600,000 bpd. For May, it dropped 914,000 bpd, citing India’s demand problems as a result of the outbreak, a situation that will no doubt result in a large inventory.
But not everyone is pessimistic, Goldman Sachs sees things more rosy, with up to $ 80 in oil this summer. The rationale for this positive view of oil prices is simple: “The magnitude of the impending change in the amount of demand – the dynamics that supply cannot match – must not be spoken too much.”
Rystad analyst Louise Dickson said oil demand would likely continue to rise 3 million barrels per day between now and the end of June.Is India in trouble? According to her, oil prices are likely to return to $ 70 a barrel over the next few months.
UBA considers the launch of the vaccine a significant positive for the oil industry. When people return to their normal activities and fully open up new businesses, oil demand will raise Brent to $ 75 a barrel in H2, according to analyst Giovanni Staunovo. Related: Oil Prices Soar Over 7 Weeks On Demand Optimism
Moody’s is also quite optimistic about the pace of oil price recovery, citing rising consumer demand that will drive the global economic recovery. But their mid-term price range remains at $ 65 a barrel. Moody’s views the economic recovery as an accelerating recovery in oil demand at the end of this year and early next year.
The outlook may be uncertain. But the current trend is one of oil stock draws, a sign of rising oil demand while OPEC + continues to limit production volumes. For example, in the most noticeable US oil market, commercial crude stocks finally dropped back to a five-year average during this time of the year of 493 million barrels.
India’s viral explosion will not hinder oil price recovery But there is a big chance it will slow the recovery in the second half of this year or even the beginning to the middle of next year.
If so, that is a long time for OPEC + members to continue to hold on to output constraints as demand takes time to recover.
By Julianne Geiger for Oilprice.com
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