• Oil markets are betting on a rebound in US demand in the face of declining fuel consumption


    Osama Suleiman from Vienna

    The oil markets are betting on the recovery of the American demand for oil after the US President Donald Trump's decision to increase purchases to fill the strategic reserve stocks. Promised by analysts who spoke to the "economy", it is positive and represents a glimmer of hope in overcoming the decline in the fuel consumption crisis.
    In contrast, analysts expect oil prices to continue to decline during the current week after recording the most severe level of losses at the close of last week, the worst since the global financial crisis in 2008, where Brent crude plunged 25 percent and US crude 23 percent on a weekly basis.
    Analysts attributed the wave of violent losses to the rapid spread of the Coronavirus in many countries of the world and the return of the specter of a strong economic slowdown and a decline in global oil demand, in conjunction with the return of producers to production with maximum capacity after the stumbling of the agreement to reduce production between the "OPEC +" coalition last week.
    Analysts pointed to the importance of stimulus measures taken by major economies to overcome the repercussions of the spread of the Coronavirus, pointing to the fact that Saudi Arabia and the UAE have undertaken stimulus packages worth $ 40.6 billion aimed at supporting their economies in light of the global crisis and the sharp decline in oil prices​.
    In this context, Ross Kennedy, Managing Director of QHA International Energy Services, says that the market is likely to continue bleeding losses in light of the negative atmosphere in the global economy, which was exacerbated by the repercussions of the OPEC + producer alliance in the agreement. On additional cuts of 1.5 million barrels per day, which led to a price drop of more than 30 percent.
    Kennedy pointed out that there are strong fears and expectations in the market that Brent crude may drop to below $ 30 a barrel, and record levels that did not occur even during the period of the global financial crisis, pointing to the continuous expansion in demand losses as a result of the increasing decisions to stop flights between most of the world Especially in the Middle East.​

    For this part, Alexander Bugel, a consultant with GBC Energy, believes that economic stimulus packages are necessary measures that many countries of the world take to support the efforts of governments to combat the Coronavirus and mitigate the expected financial and economic impacts.
    Bugel added that prices entered a sharp descending wave, especially with expectations of continued weak data for global demand, noting that international data confirms that the total demand for oil products in the Middle East will likely decrease 0.6 percent on an annual basis to an average of 9.7 million barrels per day in half The first of this year.
    For this part, Peter Bacher, an economic analyst, and expert in energy legal affairs believes that a sharp drop in prices is a risk that affects investments in downstream projects after refinery demand has decreased due to heavy fuel consumption losses after the flight ban and most of the world's people adhere to their homes until complete control of the spread Corona Virus​.
    Prices rose in trading last Friday, recovered after the United States and other countries announced plans to support the weakening economies, but Brent crude fell 25 percent over the week, in its biggest weekly loss since the global financial crisis in 2008.
    According to "Reuters", "Brent" rose 63 cents, to settle the settlement price at 33.85 dollars a barrel, while West Texas rose 23 cents to close at 31.73 dollars a barrel. And US crude futures contracted about 23 percent over the week, which is the largest Her loss in percentage since 2008.
    Oil and stock markets drew some support from hopes of a US stimulus package that could ease the economic shock caused by the Coronavirus.

    Baker Hughes Energy Services reported in its closely watched report that energy companies added four oil rigs last week, bringing the total number of operating rigs to 682, the highest level since December.
    This represents a decline of 18 percent, compared to the same week a year ago, when the number of operating rigs was 834.
    Exxon, which analysts say occupies most of the US oil rigs, has said it will cut about 20 percent of the 58 rigs it operates in the Permian Basin this year, and the Permian Basin in West Texas and eastern New Mexico is the country's largest oil shale.
    In 2019, the number of oil rigs, an early indicator of future production, fell by an average of 208 rigs, after rising by 138 in 2018 as independent exploration and production companies cut spending on new drilling as shareholders sought better financial returns, in light of the situation Energy prices fall.​
    A Reuters survey concluded that oil prices tend to lie near current low levels in the coming months, as a failure of the producers' agreement to limit production harms an already reeling market due to falling demand caused by the Coronavirus.
    Analysts in the quick poll reduced their expectations for Brent crude prices to $ 42 a barrel on average this year, compared to $ 60.63 on average in the February monthly referendum.
    It is expected that the average price of global benchmark crude will reach about $ 34.87 in the second quarter and $ 39.05 in the third quarter before recovering some strength and reaching $ 44.08 in the fourth quarter of the year.
    The survey, which included 21 analysts, expects the average US crude price to reach $ 30.37 a barrel in the second quarter and around $ 37 a year for the entire year.
    "The price drop is on track to continue for the next two quarters at the very least. Brent and WTI will need to get used to oil prices below $ 30," said Edward Moya, chief market analyst at Oanda Brokerage.
    Crude futures fell more than 30 percent at one time last Monday, the largest drop in a single day since 1991, after the agreement between the Organization of Petroleum Exporting Countries (OPEC) and its allies, including Russia, could not be reached within the framework of what is known as "OPEC +". , To extend their production cuts.
    At the same time, US shale oil producers rushed to deepen spending cuts and reduce future production, and the stuttering of the "OPEC +" agreement adds to concerns about demand under pressure due to the high-speed global spread of the Coronavirus, which has paralyzed supply chains and caused a downturn in financial markets​.

    It is expected that the global demand for oil will pass its first quarterly decline for the first time since 2008, as most analysts predict a decrease in total global demand between 0.8 million barrels per day and four million barrels per day in the first half of 2020, and for the whole year, slight growth in demand is expected at Between 0.1 million and 0.5 million barrels per day.
    On the other hand, Goldman Sachs expects that the oil market will witness a record surplus of about six million barrels per day by April, taking into account the larger-than-expected rise in low-cost production, while lower demand resulting from the outbreak of the Coronavirus is "increasingly widespread". ".
    Goldman Sachs said in a note dated March 12: "The reaction of the high-cost producers when we expect that Brent crude in the second quarter of 2020 will record the price of $ 30 a barrel will not be sufficient quickly to dispel the impact of the record large increase in inventory, which will occur in the coming months." ​

    The bank's analysts added that a jump in stocks may also force some high-cost producers to stop production, as the logistics conditions of storage may be under pressure.
    The American bank estimated demand losses due to the spread of the Coronavirus, which is spread at about 4.5 million barrels per day, but pointed to some indications of the improvement in Chinese demand for oil.
    He noted that the accumulation of oil stocks over the next six months may be similar to the increase, which occurred over the 18 months between 2014 and 2016.
    On the other hand, the growth in world demand will witness a decrease of about 310,000 barrels per day in 2021, and it will significantly differentiate the impact of any rapid reaction on the level of supply by high-cost producers, in particular, with expectations currently for shale oil production to drop by 900,000 barrels per day. In the first quarter of 2021​.

    Goldman Sachs noted that "any possible new escalation of geopolitical tension in the Middle East will not prevent the downward pressure caused by a rapid accumulation of stocks unless it leads to major historic supply interruption."
    On the expected American production, the bank expected that "American oil production will decrease by more than one million barrels per day from the high levels recorded in the second quarter of 2020 by the third quarter of 2021 ... We believe that companies that announce cuts in capital spending are generally preparing for an oil price that ranges between 30 and 35 dollars a barrel for many seasons. "
    In addition, Daniel Yergen, the US energy expert, believes that it will take a long time to relieve pressure on falling oil markets at a time when the Coronavirus causes public events to be closed and schools closed​.
    Trump administration officials are studying several ways to support energy producers, including buying oil at current low prices to store it within the Strategic Petroleum Reserve, held in warehouses along the Texas and Louisiana coasts.
    But Yergin, who sometimes advises US officials on energy issues, is skeptical. "I don't see how the strategic oil reserve can be used ... With the amount of oil coming into the market,​ this will actually lead to stockpile inflation, and it will take a long time to reduce it," he said.
    It will be difficult to prove that anyone is offering oil at less than its market value, and in any case, fixing the matter will not be overnight, said Yergin, who is also IHS Market's deputy chairman.​
    He continued: "Low gasoline prices do not do much when schools are closed, and people cancel all their trips, and work from home," expecting an acceleration of the merger of energy companies, as he sees that "the merger will be one way for people to reduce costs."​


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