Oil price recovery above $50 to be delayed
Covid-19 and doubts about the availability of a vaccine may delay a further recovery
Gulf countries face a challenging few months in balancing their economies with oil prices likely to remain under pressure and a price recovery above $50 per barrel not expected before the end of the year, Saxo Bank said on Wednesday.
Ole Hansen, Saxo Bank's head of Commodity Strategy, said declining global energy demand affected by Covid-19 travel restrictions, rapidly mounting oil supplies in storage facilities and Saudi Arabia's reduction in its oil-exporting price are the key factors likely to keep the price of oil below $ 50/barrel until 2021.
"Crude oil has been trading in a fairly stable pattern in the low $ 40s since June, however we are seeing evidence in data from the physical market that there are risks emerging. Weak refinery margins, caused primarily by the excess of unwanted diesel and jet fuel, are leading to storage facilities rapidly filling up," Hansen said during an online briefing.
While a dramatic new sell-off in crude oil is no t expected, acceptance needs to be reached that Covid-19 and doubts about the availability of a vaccine may delay a further recovery towards $50 and higher until next year, he pointed out.
"A dent in demand caused by a continuing rise in cases or a second wave presents the most likely shock that the oil market needs to be considering in the next 12 to 24 months," Vitol's global head of research, Giovanni Serio said.
Oil prices tumbled in April, with US crude futures falling at one point through negative-$40 a barrel. Prices of both US crude and Brent recovered, but are now trading at less than $40, due to the weak rebound in demand.
On Tuesday, the International Energy Agency cut its 2020 outlook for oil demand by 200,000 barrels per day to 91.7 million bpd in its second downgrade in as many months.
Hansen expects global energy demand to remain on regional governments' agendas for some time, with the outlook for energy markets still unclear even when a vaccine puts an end to the pandemic.
"Much depends on how we individually and collectively change behaviour, and how we work in the future," said Hansen.
He said it is entirely possible the pandemic will change the way we live and work in the future, which may negatively impact the consumption of fuel going forward.
"I expect the new normal will mean fewer domestic and international business meetings, a higher rate of professionals working from home, an uptake in cycling as a form of transport, a substitution of domestic holidays for foreign trips, and a preference for domestic service and goods. These factors will have a meaningful impact on energy demand, and I expect this issue to be a leading focal point in 2021 and beyond," said Hansen.
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