Oil Needs Strong Demand Recovery To Break Out Above $40

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Oil prices are unlikely to go much higher than current levels if global oil demand recovery doesn’t pick up in a meaningful way in the second half of the year, the monthly Reuters poll of analysts and economists showed on Friday.  

According to 43 experts surveyed by Reuters, Brent Crude prices will average $41.50 per barrel in 2020, an upward revision of $1 a barrel compared to last month’s forecast of $40.41 per barrel. The U.S. benchmark, WTI Crude, is projected to average $37.51 a barrel in 2020, up from $36.10 per barrel forecast in the previous survey.

In last month’s Reuters poll, analysts said that oil prices were unlikely to jump in any significant way this year despite the OPEC+ production cuts as the economic and oil demand recovery are set to pick up steam only in the fourth quarter.

In this month’s survey, analysts expect oil prices to move slightly higher, but lingering uncertainties over the oil demand and economic recovery will continue to cap price gains.

Resurging COVID-19 cases in many parts of the world, including in the world’s top oil consumer, the United States, may slow down the re-opening of the economies and slow down the pace of the demand recovery, according to the analysts.

A major bullish factor for prices could come from the development of an effective vaccine soon—this could accelerate economic recovery and, consequently, global oil demand recovery, the experts in the poll said.

Oil prices have been range-bound in recent weeks as signs of demand recovery have been dampened by spiking coronavirus cases in many countries. California returned to lockdown two weeks ago, while the UK re-imposed on Friday some lockdown measures in the Greater Manchester area and other parts of northwest England after the number of new cases surged.

Earlier this month, the International Energy Agency (IEA) said that global oil demand was set to crash by 7.9 million barrels per day (bpd) this year, but this forecast was slightly more optimistic than last month’s expectation of an 8.1-million-bpd demand drop. The IEA, however, noted that the recent rise in COVID-19 cases and the reinstating of partial lockdowns in some countries continue to weigh with uncertainty on the world’s global oil demand in 2020.

By Tsvetana Paraskova for Oilprice.com

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