*Oil unlikely to exceed $40/bbl this year
The recent move by China to pass a national security law in Hong Kong has reignited tensions between United States and China, which are threatening over $52billion in energy sales and have brought an end to the oil price rally.
According to Oilprice.com, the long rally for oil prices came to a halt on Friday over fears about a slower-than-expected economic recovery in China. It also said the Chinese government broke with tradition and declined to set a growth target for 2020 due to “great uncertainty,” while markets were also disappointed with the tepid size of government stimulus from Beijing. Besides, rising U.S.-China tension over Hong Kong, adds to the concerns, it added.
Despite the challenges, the report noted that China’s oil imports would rise irrespective of questions about its economic growth. China’s oil imports are set to rise by about two percent this year. In fact, China’s oil demand is already back to about 90 percent of pre-pandemic levels, it stated.
In view of these concerns, the report said hedging future production is becoming less of an advantage for shale drillers. Oil prices, it noted, are too low and also are more costly after a bout of volatility, including negative prices. “There has been a dearth of opportunities to hedge for 2021, and this is traditionally the period when you lean into next year’s hedging at more robust levels,” Michael Tran, managing director of global energy strategy at RBC Capital Markets, told Bloomberg. Roughly half of U.S. producers tracked by Bloomberg have their production hedged for 2021. Still, the fact that some are still hedging demonstrates fears that prices could slide back below $30 per barrel next year.
According to Business Insider, despite production cuts from OPEC+ and North America and slowly improving demand, oil prices are not expected to average much higher than current prices in 2020 because of renewed U.S.-China tensions, the monthly Reuters poll of dozens of oil analysts showed on Friday.
According to 43 analysts surveyed by Reuters, the U.S. benchmark West Texas Intermediate (WTI) Crude is set to average $32.78 a barrel in 2020, which is roughly where the contract was trading early on Friday.
Brent Crude prices are expected to average $37.58 per barrel this year, the analysts in the Reuters poll predicted. Experts have lifted their forecasts for both benchmarks compared to the April poll, when WTI Crude was expected to average $31.47 a barrel and Brent Crude was seen averaging $35.84 per barrel.
So far this year, Brent Crude prices have averaged $42.37 a barrel.
Early on Friday, oil prices were down on the day more than two percent and on track for a first weekly loss in five weeks. However, after the ‘black April’ for oil demand and oil futures, this month the price of oil has rallied by nearly 40 percent, so despite being on course for a weekly loss, prices were on track to score the best monthly performance since March 1999.
For the average prices in 2020, analysts expect the cuts from major producers in and outside the OPEC+ pact and the recovering demand to support oil in the coming months. However, renewed U.S.-China tensions over China’s new security laws for Hong Kong have been weighing on equity and oil markets in recent days. The analysts polled by Reuters expect that price gains from improving fundamentals could be capped by flare-ups in the U.S.-China relations, which could damage the post-coronavirus economic recovery and trade.
Earlier this week, Morgan Stanley said it expected Brent Crude to trade at $40 a barrel by the end of the year thanks to the recovery in demand, which has taken off faster than the bank had predicted.
However, WTI crude oil spiked 88 per cent in May, notching its best monthly performance gain on record, according to data from Bloomberg.The surge in oil prices comes just one month after oil prices went negative for a brief period of time, as demand for oil plummeted amid the economic shutdown caused by the COVID-19 pandemic.
Fast forward a month later, and signs of bottoming economic data suggest investors are willing to bet that demand for oil will bounce back as well.While crude oil prices surged nearly 90 per cent in May, energy stocks jumped only 2.5% for the month, as measured by the SPDR Select Sector Energy ETF.
International benchmark grade, Brent crude on Friday traded at $35.33 per barrel, a marginal increase of $0.04 or 0.11 per cent, while WTI traded at $35.32 per barrel reflecting an increase of $1.61 or 4.78 per cent and Nigeria’s Bonny Light rose to $34.61 per barrel, an increase of $0.74 or 2.18 per cent.
