Demand Worries to Further Impact Oil Prices This Week

By Adedapo Adesanya

Expectations for improvement to crude prices were heavily weighed down last week by worries in demand as the hopes created by a massive production cut did not do anything for the market.

This week may yet continue to see the same problems and have huge negative impact on prices. Last week, prices fell to their worst level in over 20 years.

The largest problem affecting demand is the coronavirus and it has and will continue to affect the oil market, putting oil companies and by extension economies at risk.

Even with over 10 percent of global supply halted and to begin next month, the largest in history, nothing came from the news of reduction in cuts as prices reached lower levels.

More problem arose as forecast from the International Energy Agency (IEA) tagged April as the worst month for oil this year, after a drop in demand by 29 million barrels, the largest since 1995.

Relatively, it projected that demand will drop 9.3 million barrels per day for 2020 as there is no enough cut that can help improve demand because of the coronavirus factor.

The output cap implemented by oil producers may begin to make a difference for the market by June, but for the remaining two months in the first half of the year, volatility is expected to mar the market.

This is because storage tanks are expected to top out in May, and with the traders in NP hurrying to buy crude because of limited facilities to store them, prices are expected to face south.

Even if prices will go up this week, they won’t matter much and will still remain in bottom levels. Right now, unless there is a reduction to number of coronavirus and opening of the economy, the market is not too hopeful.

Further, an extension to cut by up to 20 percent could as well bring some good news, but that is not possible at the moment as the next meeting by producers have been slated for June.

As at press time, the international benchmark, Brent Crude, was trading down at $27.39 per barrel, while the US West Texas Intermediate has fallen to its worst level since 1998, trading below $15 at $14.80 per barrel.