Production Cut, Lockdown Ease to Buoy Oil Prices

May 4, 2020
crude oil prices

By Adedapo Adesanya

Crude oil prices rose last week as major oil producers led by Saudi Arabia and Russia were set to begin cutting output by 9.7 million barrels per day, ending a run of four weeks losses in the market.

Both the US West Texas Intermediate and the Brent crude oil futures finished higher as demand pressure continue to mount on the market due to the global COVID pandemic.

This week, the market will be banking on deal signed by members of the Organisation of the Petroleum Exporting Countries (OPEC) and its allies known as OPEC+ to take about 10 percent of the global supply off the market, a move that analysts have seen as an ambitious start to regain control of the oil supply and to stabilize prices.

Another major thing that the market will be looking at this week is the re-opening of economies around the world. Activities are returning gradually in countries like Nigeria and Europe and they will do well to help prices this week as the worst month for oil – Black April – came to end, meaning demand worries although still existent will not be as telling as they were before.

Even with the fall in demand, storage concerns also continue to weigh on markets with the International Energy Agency (IEA) warning that global capacity could reach its maximum by next month and that energy demand could slump by at least 6 percent in 2020 due to lockdowns.

Last Tuesday, the American Petroleum Institute (API) weekly inventories report showed a smaller than expected build, and continued on Wednesday when the U.S. Energy Information Administration (EIA) reported numbers below the forecasts.

This week, expectations of a long term gain may not be possible, but all factors point to a back and forth between gains and losses, majorly due to the demand problem. But even if gains were to happen, the market would not look at more than a little rise due to the cuts.

Gains this week are likely to be capped and selling pressure may resume over the short-run since the plunge in demand is three times the size of the OPEC+ output cut.

Prices could remain within their range last week ($18- $25) because of signs of a tightening of US supply. Traders and domestic oil companies are hoping this develops into a trend. However, many would like to see more aggressive cuts in production by US producers.

There is also the problem of storage capacity getting fuller every week, a rise in prices cannot be sustainable for long as the problem is not resolved soon.

As at the time of this report, Brent Crude was trading down at $25.74 per barrel, while the WTI was pointing down at $18.41 per barrel.

Adedapo Adesanya

Adedapo Adesanya is a journalist, polymath, and connoisseur of everything art. When he is not writing, he has his nose buried in one of the many books or articles he has bookmarked or simply listening to good music with a bottle of beer or wine. He supports the greatest club in the world, Manchester United F.C.

Leave a Reply

Infectious Diseases Hospital Bayelsa
Previous Story

Oil Stakeholders Begin Construction of Hospital in Bayelsa

JAMB
Next Story

JAMB Remits 7bn Fund to FG

Latest from Economy

Don't Miss