Oil prices are falling again due to uncertainty about a new economic stimulus package in the US. Moreover, relations between China and the United States are deteriorating every day.
On Monday, it became known that new measures would restrict access of the Chinese telecommunications company Huawei Technologies Co. to the key components for its work.
Moreover, in some countries restrictive measures were reintroduced due to the coronavirus infection. Wood Mackenzie analysts believe that this is a serious threat to the recovery in oil demand.
Dulles Vaughn of Wood Mackenzie is sure that the second major lockdown will deepen the recession and possibly delay the GDP recovery until 2022. It will simply crush the oil and gas sectors.
The company expects Brent crude to rise to $86 per barrel by 2030. But in the case of a second wave of coronavirus and its consequences, analysts expect an increase to $70 per barrel.
The execution level of the OPEC deal was 95% in July while countries outside the OPEC group complied with their obligations by 96%.
Thus, OPEC countries reduced production less than they should have done under the terms of the deal. Those countries that did not fulfill the terms of the deal will be obliged to compensate the shortfall in August and September.
October's futures for Brent crude dropped by 0.40% to $45.19 per barrel, while September's futures for WTI decreased by 1% to trade at $42.46 per barrel.
In April, Brent crude oil prices fell below $15.9 due to global lockdowns imposed to prevent the spread of the coronavirus.
Experts believe that in the near future, the situation with the balance of supply and demand in the oil market may worsen, since the volume of oil reserves is still large.
Oil prices are quite justified today, as analysts from Bank of America said. Firstly, demand is recovering slowly, secondly, the OPEC + countries strictly comply with the terms of the deal, and, finally, oil production in countries outside the OPEC + group is falling. These three factors keep quotes on the current level.
On August 1, the new terms of the OPEC + deal came into force. Oil production will be reduced to 7.7 million barrels per day. These conditions are expected to continue through December 31st. The leaders of the group said confidently that they did not intend to soften quotas amid rising oil prices. Most likely, they will change plans for countries that do not fully comply with the agreement, such as Iraq and Nigeria.
Nevertheless, today, the second wave of COVID-19 and the return of quarantines remain the main threat. The situation with the demand for oil products is the main driver of oil prices. The pandemic factor does not allow the economy to recover as fast as possible, as well as the removal of restrictions on businesses and the movement of people.
However, some experts believe that the coronavirus will no longer have a critical impact on quotes. Governments of the largest countries will not agree to block their economies again.
One of the main factors that influenced oil prices is the situation in the American shale sector. It was hit hardest by the collapse in oil prices. Capital expenditures fell by 30-40%, the number of active drilling rigs in the United States fell to the lowest level over the last 15 years to 172 units.
Most companies are on the verge of bankruptcy. Some of them also filed for bankruptcy, for example, the largest American shale oil producer Chesapeake Energy.
Experts believe that at the moment it is impossible to talk about an early recovery in the industry. First of all, oil prices should stabilize at higher levels.
Will prices be able to return to the pre-crisis levels? Experts believe it will take at least a year to reach $60 per barrel only if there is no second wave of coronavirus. Sustainable growth can be expected only after a full recovery in demand, which will take a long time.
However, experts warn of a possible price correction against the backdrop of the US presidential election and a worsening economic situation. In this case, oil prices will not rise above $40-45 per barrel even in 2021.
