Brent crude oil prices may recover to $50-70

Dubai - On April 20, the WTI crude slumped below 0 for the first time in history and closed in negative territory.

Oil prices could slump to zero in the near-term, but will recover in the first half of 2021 with Brent ranging $50-70 per barrel, according to an analysis by Saxo Bank.

"The short-term outlook for oil looks bleak, which is especially concerning for Mena economies that depend heavily on oil revenues. There is a risk of WTI crude falling back towards $0 per barrel and Brent towards $10 a barrel, but in the long term we believe the outlook is positive," said Ole Hansen, head of commodity strategy at Saxo Bank.

While addressing a virtual press conference on Wednesday, he said oil market could see the fall in oil prices reaching its peak in the next four-to-six week period.

Edward Bell, senior director for market economics at Emirates NBD Research, has also said that crude prices could again test sub-zero levels if the supply-demand fundamentals stay poor and speculative market positioning in front month futures remains concentrated in a few participants.

On April 20, the US crude West Texas Intermediate (WTI) slumped below 0 for the first time in history and it closed in negative territory. On Wednesday, WTI was up 16.3 per cent or $2 a barrel to $14.35 while Brent gained 5.2 per cent or $1 to $21.52.

Hansen said despite the short-term collapse in oil, the long-term outlook is positive.

"Demand will return when the pandemic passes, albeit with slightly lower demands than previously as business travel may reduce and companies may accept more flexible working practices in light of the Covid-19 experience showing productivity does not necessarily drop when employees work from home," he added.

The slowdown in demand has produced a stockpile of oil on scales never seen before, he said, adding, "If we don't see a dramatic increase in demand soon, the world will run out of storage facilities towards the end of May."

Hansen said: "Oil needs to be stored somewhere. You cannot extract it and not store it somewhere. There may be 20 million barrels of oil shut in over the next few weeks and when that occurs, oil prices will come under additional pressure," he added.

"We have to get to balance between supply and demand. We will to have to see forced closure to certain amount of millions of barrels in order to bring balance. So when the balance is reached that is the best for the market and that is why I see that even now demand is down by around 25 to 30 million barrels," Hansen said.

"We have to think about a market that is not supplying 100 million bpd but 70m bpd. This is new base where the market has to operate and have to make forward projections," he said.

Hansen believes the oil storage issue is central to industry's fortunes, with survival dependent on producers accessing direct customers or storage facilities.

waheedabbas@khaleejtimes.com