Friday , January 15 2021

$ 70 oil could be just around the corner



The oil markets have always been cyclical, and now even more with advanced electronic commerce, reaching more speculation (which often results in greater oil price fluctuations) and more manufacturers, including the revival of US oil production, now more than 11 million barrels a day. Added to the cocktail of uncertainty is also a myriad of geopolitical and economic factors, including ongoing trade tensions between the United States and China, anxiety on the US Federal Reserve policy and wars in Syria, Yemen and elsewhere, making it increasingly difficult to predict the direction of future oil prices .

This dynamic has proved true over the last two and a half months, as market participants have seen (often in awe) how global oil prices reached multi-year highs in October, only to jump rapidly by 40 percent to date. Worldwide oil benchmark prices, London-traded Brent crude futures, were trading in the mid-$ 80's range in early October, while US oil benchmark, NYMEX-traded West Texas Intermediate (WTI) crude futures hovered in the middle of the $ 70s range, a comfortable price point for US shale oil manufacturers and about $ 25 per shale. barrel above average oil production break point for slate manufacturers.

However, a group of bankers, through all the gloomy economic news and problematic geopolitical developments, is optimistic about future oil price forecasts. On Friday, Bloomberg said many of the world's largest banks are expecting an increase in oil prices next year, as fears of a recession appear to be misplaced.

According to a Bloomberg study of oil analysts, Brent will average $ 70 per annum. Barrel in 2019, almost a third higher than the price on Thursday. Michael Cohen, head of energy and commodity research at Barclays Plc in New York, said "we could even see something similar to a V-shaped recovery next year on two very important terms. One that the reduction in OPEC exports leads to a reduction in and two that we do not see any further deterioration in macroeconomic conditions. "

The Bloomberg report added that, despite a recent darkening outlook for the global economy, due to long-standing trade disputes between the United States and China, and as the US federal reserve begins to tighten monetary policy, most commentators do not see a real recession that bites the oil market next year. The average forecast for 24 oil analysts in the Bloomberg study shows that Brent's crude futures will be $ 70 on average. Barrel in 2019. The price on Thursday was about $ 53.50, while the average until now 2018 has been about $ 72. Meanwhile, the median forecast for WTI is $ 61.13. WTI futures are trading at around $ 45.27 on Monday. Related: Low Oil Prices May Confuse Texas Jobs Growth

Michael Tran, a commodity strategist at RBC Capital Markets LLC, said prices are approaching a bottom, while global supply and demand should reach a fine balance next year. "Bloomberg added that, in the absence of a severe economic downturn, most analysts were expecting world oil consumption to continue to grow at the pace seen in recent years, driven by emerging economies like China.

Downplaying trade war variable?

But even though the analysts surveyed by Bloomberg give credibility to the ongoing trade tensions between the United States and China, unless a new trade agreement is reached by the self-imposed 2 March deadline between the two sides, global oil demand actually fall in the midst of weaker global economic growth, due to a slower in Chinese production and exports. As the US and China are the world's two largest economies, current trading tensions are already hit by global supply chains, especially in Asia. Numerous manufacturing companies have already left China for greener pastures, including the establishment of a store in neighboring Southeast Asian economic tiger Vietnam.

Japan, the world's third-largest economy and a major importer of both crude and liquid natural gas (LNG), already has its economic decline from the US-China trading partner. In September, the Tokyo-based Nikkei Asian Review said at least 60 percent of top Japanese companies expected earnings to be harmed by the commercial war. If Washington and Beijing could not reach a formal trade war ceasefire by March 2, this 60 percent could likely include almost all of the top Japanese companies, while Japan's GDP would also hit, as well as oil would demand growth in the country.

A long-lasting trade war between the US and China will also hit other OECD members. Last month, the group of developed economies downgraded its global growth forecast from 3.7 percent to 3.5 percent in 2019 and 2020. However, this growth forecast is likely to be adjustable if the US raises existing tariffs of $ 200 billion. Of Chinese products as high as 25 percent, while slapping fresh duties on another Chinese export $ 267 billion. Will aggravate the problem.

By Tim Daiss for Oilprice.com

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