Future oil after pandemic 2020

Future oil after pandemic

Future oil after pandemic 2020, will likely face difficulties to return to normal prices as before the pandemic. As a result of a drastic decline in world oil demand because coronavirus has forced many companies to stop production due to lockdown. And there is also a ban on cross-country flights. This has caused the demand for oil to decrease dramatically.

Oil prices have declined several times, although OPEC has tried to cut oil production to limit world oil supplies on OPEC meetings a few months ago.  However, it seems that the effort of OPEC is get an obstacle, and oil prices have even fallen below zero, and even become negative prices.

This condition is directly proportional to the demand for vehicle fuel oil at the fuel station as the final oil trader. In ASEAN, several countries have lowered oil prices to adjust to global oil prices. Malaysia, Myanmar, Vietnam, Cambodia, the Philippines, Thailand, Laos, and Singapore are 8 ASEAN countries that decreasing oil prices during the pandemic.

Then what is the fate of future oil prices after the pandemic? We will try to do some analysis related to the possibility of world oil prices after a future pandemic.

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Historical decline in world oil prices

World oil prices during the pandemic have decreased the lowest price in history. The oil price crisis overshadows oil-exporting countries as international prices drop.

The West Texas Intermediate (WTI) American oil price on the Nymex futures exchange even facing a negative price. While the international oil price of Brent on the ICE futures exchange drops to around the US $ 25 per barrel.

This time, negative oil prices occurred throughout history. This sharp decline has been a severe blow, especially for oil-exporting countries.

Actually the oil price drops have started in 2014. Oil prices have decreased dramatically from the US $ 100 per barrel to around the US $ 30 per barrel in early 2016, the lowest in 12 years.

The decline was due to the impact of abundant oil reserves from various producing countries.

oil price prediction after pandemic

Abundant reserves of exporting countries

The abundance of oil reserves that flooded the market was partly because the United States’ shale oil production peaked in 2012-2014 and flooded the domestic market.

Meanwhile, oil-exporting countries that are members of OPEC also produce oil that exceeds the target. The goal is to maintaining market share.

But it turns out that world oil demand is not in line with expectations as China’s economic growth slows.

Because look at the declining price conditions then OPEC decided to cut production to stabilize prices. This strategy succeeded in making world oil prices start to rise in 2018 to around the US $ 50 – 60 per barrel. Even the price of Brent touched the US $ 70 per barrel.

Besides the production cuts by OPEC, the increase was triggered by geopolitical problems due to US economic sanctions against two OPEC member countries, Iran and Venezuela.

However, further increases in world oil prices slowed. Oil prices are only able to move in the range of US $ 60 per barrel as oil consumption is weaker than the expected. Due to the impact of the continued slowdown in the world economy.

Pressure on the world economy comes mainly from the trade wars of the United States and China, which risk extending to other countries.

Oil amid of a pandemic

The unfinished blow of the economic downturn is causing it to weaken oil prices. Coronavirus suddenly spread rapidly into a global pandemic and forced various countries to do social distancing. Even some countries impose lockdowns that disrupt the business sector.

Crude oil has finally flooded the market again. Oil prices have returned to a downward trend since the beginning of this year, but sharp decreases have begun since late February.

In early March, Russia rejected proposals to cut oil production at a meeting of oil-exporting countries and OPEC plus. This triggered a month-long price war between Saudi Arabia and Russia. The price war ended after a meeting in early April. OPEC plus agreed to cut oil production by 10% or around 10 million barrels per day.

Even though there was an agreement to cut oil production, oil demand fell by 30 million barrels per day, even more. This causes the price of oil to drop again.

Oil price negative

The decline in WTI oil prices is even at a negative price. This means that producers are willing to pay to be able to release their oil reserves.

Why do producers want to pay for oil reserves? Because oil wells cannot be turned off and reactivated easily. To reactivate requires a large cost.

Meanwhile, the oil reservoir is full. It was reported that traders rented ships to accommodate excess oil. In April, the IMF revised down the average estimate of the price of Brent oil, from the US $ 58.03 per barrel to the US $ 35.61 per barrel for 2020. Whereas for 2021, the projection is down from the US $ 55.31 per barrel to the US $ 37.87 per barrel.

Oil Price Drops During the 2008 Crisis

The sharp decline in world crude oil prices also occurred after the 2008 global economic crisis and the 1998 Asian financial crisis. The root causes of the problem are the same: global oversupply of oil and falling oil demand in the world.

It was reported that OPEC oil production in 2009 increased mainly supported by Nigeria as the security conditions improved in the country.

Based on Trading Economics data, the price of Brent oil fell from a range of US $18 – US $20 per barrel in the last quarter of 1997 to the US $10 in November 1998.

While the price of oil dropped to around the US $40 per barrel in 2009, after surging so high that it had touched the US $140 per barrel in 2008.

But, at that time, the price recovery quickly occurred.

Oil Price Predictions for 2020 after the pandemic

What are the conditions for oil prices after the pandemic ends? No one knows for sure whether oil prices will rise soon. Or still, wait even longer because the economic recovery period requires a long time.

The price of oil which had a negative price showed that the world economic conditions really dropped dramatically.

Many companies are forced to stop production because of lockdowns, and even many workers are ultimately dismissed because the company can no longer afford to pay them to cut production costs.

Meanwhile, to rebuild large companies requires more costs and also is not easy to increase sales after the sluggish global economic conditions.

However, several large institutions have given predictions on the possibility of oil prices going forward, Goldman Sachs, World banks, UBS, and so on. The following is the prediction of oil prices after the pandemic from several world institutions.

Goldman Sach prediction

Goldman Sachs is a well-known American company. One of Goldman Sachs oil strategists Damien Courvalin has a prediction that crude oil prices will remain low around $ 30 a barrel for at least the next few months.

According to him, it still takes time to get the balance for at least six months. During that time it was to reflect important structural changes, which were the end of OPEC cuts, and strategies to get market share back.

The World Bank

The World Bank is a bank formed by the Bretton Woods Agreement. The institution also predicts oil prices for 2020 amid a coronavirus pandemic.

They have revised the estimated oil price for 2020 to the US $ 35 per barrel. The revision was made from the previously predicted US $ 58 per barrel expected to occur in October.

Earlier, trade data showed that the price of West Texas Intermediate (WTI) oil jumped by 18 percent, with growth appearing at 20 percent.

Where on April 20, the price of WTI crude oil for May delivery fell to a negative position for the first time in history.

UBS predicts oil prices after a pandemic

UBS is a multinational company engaged in finance that was founded in 1998 through the union of Union Bank of Switzerland and Swiss Bank Corporation. UBS Headquartered in Basel and Zurich, Switzerland.

About oil price predictions after a pandemic, one analyst from UBS predicted that the oil market would be balanced in the third quarter and undersupplied in the fourth quarter.

UBS analysts predict that the price of Brent can recover to $ 43 per barrel by the end of 2020, and to $ 55 per barrel by mid-2021.

The analyst further estimates that oil demand will contract strongly in the second quarter. Amounting to minus 15 million barrels per day for the second quarter. Compared to minus 20 million barrels per day before.

About oil demand, UBS predicts recovery will be achieved in the second half of this year. The reason is that changing consumers can prevent a quick recovery to pre-crisis demand levels.

On the supply side, with production cuts to a halt, the second half of 2020 is likely, to begin with, OPEC increasing production by 2 million barrels per day.

Fitch Solutions Country Risk and Industry Research

Analysts from Fitch Solutions expect Brent prices to average $40 a barrel this year. they have revised their previous estimate of $33 a barrel. Fitch Solutions analysts also predict the price of Brent oil will rise higher to as low as $ 49 per barrel in 2021.

Fitch Solutions analysts also predict that long-term oil prices will increase to $ 55 per barrel in 2022, then $ 60 per barrel in 2023 and $ 63 per barrel in 2024.

While contributors to Fitch, from Bloomberg, predict Brent averaged $ 39 per barrel this year. Then, in 2021 reached 50 per barrel, in 2022 reaching $ 55 per barrel, $ 60 per barrel in 2023, and $ 64 per year per barrel in 2024.

IMF

In the IMF’s World Economic Outlook, they predict an average oil price of US $ 35 per barrel until the end of 2020. This projection considers the possibility of a world economic contraction of 3%.

Previously the IMF estimated in January that oil prices could reach the US $ 58.03 per barrel in 2020 and US $ 55.31 per barrel in 2021. At that time the IMF further predicted that world oil prices would remain below the US $ 45 per barrel until 2023. Or 25% lower than the average price in 2019.

The IMF estimates that world oil demand will be difficult back to normal as before the corona pandemic. For this reason, the IMF predicts that the oil-exporting country’s economic growth will decline by 4.4% due to falling world oil prices.

Oil exporting countries in the Middle East and Central Asia will be facing an economic contraction of 3.9%. The IMF estimates that Saudi Arabia’s GDP fell 2.3%, the United Arab Emirates fell 3.5% and Iraq fell 4.7%.

Price oil prediction technical analysis

WTI Crude oil technical analysis, broadly after the price broke through the negative price, significantly re-formed the Bullish formation in the daily timeframe.

After reaching the lowest price marked at the zero percent Fibonacci retracement, it gradually stretches back up so that it now reaches a price of $ 37.88.

oil price prediction technical analysis

The price currently concentrates on the 141.4% Autofibo level, with the possibility of reaching the 161.8% level for the next few weeks.

Meanwhile, based on the RSI, currently, the price of oil has returned out of the overbought area and dived downwards. This means that there is a possibility that prices will decline again this week, looking at the reversal of the daily candle forming the beginning of a bearish formation.

But the reversal pattern formed by one bearish candle still cannot confirm the price will go down but is still waiting for the signal confirmation from the next candle.

Final thought

The sluggish world economy is paralyzed because coronaviruses have greatly affected the reality of crude oil prices. This has become a consequence of oil-exporting countries with a decline in market demand.

However the world will not stop by giving up, the pandemic must end and the economy must re-cycle.

This requires time and funds, perhaps in some countries whose financial conditions depend on foreign debt, they have made loans to economic recovery. Especially to the IMF and the World Bank which are global lenders owned by the Rothschild dynasty.

The Rothschilds have controlled almost all the world’s central banks and control the world financial system, no wonder they are the richest family in the world. Even the government of a country they can control.

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