Oil price forecast 2020 after pandemic
Oil price forecast 2020 after pandemic from UBS, and world bank you will found in this article. 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.
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. Company 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.
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.
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.
What affects oil prices?
There are several factors that can affect oil prices, including
- The condition of countries that have oil sources.
- Oil companies.
- Global oil demand.
- And the discovery of new technology and new oil sources.
OPEC (The Organization of the Petroleum Exporting Countries) is an oil cartel established in Baghdad, Iraq, in 1960. OPEC holds an important position as a cartel that has a role in influencing the supply side in world oil trade. So it’s not surprising that President Trump accused OPEC of manipulating oil prices through his tweet.
Although oil production in OPEC countries constitutes less than 50% of total world oil production. But their united position as a cartel strengthens the collective position of the non-OPEC members. So if there are OPEC meetings and comments from member officials can be a factor that can trigger changes in oil prices.
Besides the condition of oil-producing countries can also affect the price of oil.
For example, if the country in war, of course, this will result in disrupted oil production and reduce oil supply which can cause prices to rise.
Oil companies also have an influence on changes in oil prices. Because they also need operational costs in processing oil which they also have control over the price of oil produced by the company.
Demand for oil in the market is also one of the reasons that influence the rise and fall of oil prices. Increased demand will cause prices to rise and a slight demand causes prices to fall.
The discovery of new technologies that make oil drilling effective can also affect oil prices. With more sophisticated machinery production costs can be reduced, which results in a cheaper output.
Main factor trader to determine oil price
Limiting global oil supplies might control oil prices.
For example, OPEC adopted this policy in 1973, where they limited global exports to only 61%. But American oil companies make the double supply of oil, thus making the market flooded with supplies.
Some traders have analyzed and made sell on oil which following that oil prices have really gone down because of too much supply. The second factor that concerns traders is the possibility of future supply
The possibility of future oil supplies is related to oil reserves in the world. And this trader will refer to the world’s largest oil-producing countries by reading the number of existing reserves. The trader will estimate whether there is a possibility of prices going up or down because of reserves that might be used or not.
The third is demand, in certain seasons a country may need more oil so that it will increase demand which can trigger price changes.
For example, in the summer the vehicle will need more oil, or while on vacation driving, a lot of consumption for vehicle fuel.
Why Did Oil prices drop?
Previously we already knew that OPEC was one of the organizations that could influence oil prices. But on the other hand Non-OPEC countries like America and Russia do not want to join OPEC, they have their own reasons in this case.
America is a country that relies on exports in manufacturing so they need more oil. So they will be happy if oil prices are low, and this is what makes their oil production flood the market, causing prices to fall.
While Russia they do not join OPEC because their oil sources are managed more by the private sector, so the government cannot control oil supplies in the country. If America produces oil on a large scale, it will flood the supply on the market and this will cause prices to fall.
Some analysts say that oil prices will not be stable if none of the oil companies in America fall into bankruptcy.
Generally, the cause of the oil price drop is:
- Demand has decreased
- Strengthening the value of USD.
This oversupply is a result of America increasing its oil production. While OPEC is not reducing its production to make market balance.
This is because they do not want to lose the market because of competition with American companies. The condition causes oversupply and causes prices to drop.
Why can oil demand decrease? Global economic conditions are not always good and this is also one of the reasons for falling oil demand.
One reason analysts say is that China is facing an economic slowdown and is impacting declining oil demand.
The value of the USD also affects the price of oil, because like other commodities are valued in USD. So if the USD currency rises there is a possibility that oil prices will also decline.
Let take a simple example.
If the USD strengthens then America can buy more oil. Whereas if the price of oil goes down it may be because America spends a lot on the USD thereby weakening the value of the currency.
Why are oil prices rising?
World oil prices always go up and down, and this is the reason some traders choose to trade Oil on futures contracts.
Because they can make a profit from the difference price of oil, even up or down. Thus the trader will analyze the cause of rising oil prices.
In the analysis of oil prices, as we already know that OPEC is one of the factors that make oil prices rise or fall. Usually, traders will see how the comments from OPEC officials will be their future plans for oil production.
When they limit the amount of oil production then this can cause supply to decrease. Of course, this will be a concern of traders that the possibility of prices will rise.
In addition, rumors may also cause oil prices to rise. For example, an agency announced that next year they need for oil will increase more.
So some may have started to start buying oil as a reserve before prices rise. This can also drive oil prices up. On the other hand reports of shrinking oil reserves can also be a cause of rising prices, let say America reports its declining oil reserves. The decline in oil production by oil-producing countries can also trigger price rises.
For example, Iran which is sanctioned by the United States, of course, has an impact on its country’s oil production, because of export restrictions due to American sanctions.
In general oil prices are rising:
- Decreasing supply
- Increasing demand
Impact World crises into oil prices
Crises of the world can also affect oil prices, it happens because dramatically, it will allow a decrease in oil production resulting in rising prices.
Traders will feel anxious about the crises of the world so they tend to buy oil and increase demand as a result of concerns oil prices will be much higher.
For example, when the US imposed sanctions on Iran so that the country closed its oil production, and received a response from the United States, it would open force by the military.
As a result, the price of oil rose from $95 per barrel to $100 per barrel. Conditions that are unsettling the world can also cause oil prices to rise.
The chaos that has occurred in several Middle Eastern countries such as Libya, Tunisia, and Egypt, causing investors to unrest if oil supplies will decrease. And the effect of this condition causes oil prices to rise above $ 100 per barrel even to $ 113 per barrel.
The war between Lebanon and Israel also caused prices to rise in 2006 from $ 70 a barrel to $ 77 a barrel.
Impact disaster into oil prices
Natural disasters are something that is not expected, this condition can not be predicted accurately by humans. But if the natural disaster causes major damage to oil refinery companies, this will certainly cause a decline in world oil supply.
For example, when the Hurricane Katrina disaster caused oil prices to rise by $ 3. This was due to damage that caused Katrina refinery, which provided 19% of the world’s oil supply. Flood disaster in the Mississippi River also caused oil prices to rise by $ 3.98 a gallon.
This is due to damage to oil refineries due to floods that hit. From these natural disasters, it can be concluded that if it causes damage to the oil refinery infrastructure that is part of the production. It can have an effect on rising oil prices.
But if the natural disaster does not occur in an oil-producing country, then there is no effect on the supply, and the effect is not directly on oil prices.
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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