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Oil prices look for boost as production cuts come into effect

Oil markets on Friday closed on their first weekly high in a month, with Brent trading at $26.44 and West Texas Intermediate (WTI) on $19.78, as prices flickered with some good news on Opec+ production cuts of almost 10 million barrels per day (bdp) coming into effect.

“Oil markets recovered strongly last week as Opec+ production cuts began in earnest and more and more countries took steps to reopen their economies. Indeed, oil futures outperformed most other commodities and other risk assets which showed little conviction either to gain or lose,” said Edward Bell, commodity analyst at Emirates NBD.

“In isolation, and at least for the very short-term, conditions are looking better for the oil market than they have in some time. However, oil serves to lubricate the global economy and as economic conditions remain fragile—or worse—in many economies the overwhelming negative fundamentals will still exert substantial downward pressure on prices,” he added.

“The recovery in prices in this past week may be as good as it gets for some time unless there is a dramatic turnaround in economic fundamentals,” he said.

The global imbalance between supply and demand, meanwhile, is also set to halve during May from 26.4 million bpd to 13.6 million bpd according to Rystad Energy, providing oil markets with more good news as storage facilities continue to face the reality of having nowhere left to store oil.

“While this may seem like a drastic improvement from April, the oil market is not magically fixed,” said Rystad Energy oil market analyst Louise Dickson. “The storage issue still looms large and will spill over onto trading floors, as buyers are left with crude they cannot physically cannot place, and into the boardrooms of oil companies which must make very costly but necessary decisions to scale back production and give the market some breathing space,” Dickson added.

“No matter how this physical rebalancing occurs during May, we still expect that the oil price bottom is right in front of us rather than behind us. The next question for markets now is what the recovery will look like and how many oil companies are able to weather the storm and bring inevitable field shut-ins back onstream,” Dickson said.
Source: Gulf News

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