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Global oil market recovery hinges on containing coronavirus pandemic

Global oil market recovery hinges on containing coronavirus pandemic

The price of oil is currently rising, due to the recovery of the Chinese market.
The global demand for oil has decreased sharply in 2020 more than previously expected due to the Coronavirus pandemic, and there are doubts about a recovery next year, which may make it difficult for the Organisation of the Petroleum Exporting Countries (Opec) and its allies to support the market in the next stage.

The Opec said in a monthly report that global oil demand will decrease by 9.06mn barrels per day (bpd) this year, more than the 8.95mn bpd drop that was expected in July.

The International Energy Agency (IEA) expects a decrease in oil demand in 2020 as well as in 2021!

The IEA lowered its global oil forecast for the first time in several months, as the number of Covid-19 infections remains high, amid persistent weakness in the aviation, maritime transport and industry sectors, and expectations of a second wave in Europe, America and Asia in the fall of 2020.

The International Energy Agency indicated that it expects global oil demand this year to reach about 91.1mn bpd, reflecting a decrease of 8.1mn bpd on an annual basis.

The revised forecast is 140,000 bpd lower than the previous forecast by the IEA.

Bullish scenario: Continuous movement above $41.72 will indicate the presence of buyers and the recovery of demand, and this may lead to a rapid test of the secondary rise at $43.52, and exit from this level leads to an acceleration in the upward trend, but there is resistance to reach the price of $46.37 a barrel, due to the fluctuation in demand for oil, and rising oil stocks.

Currently, the price of oil in China has increased due to the recovery of the Chinese market and the purchase of crude oil from America.

Bearish scenario: While the continuous movement below $41.72 a barrel indicates the presence of sellers and ample supply, the target of the first downside in the price (go down) is a 50% minor level at $39.27 and a minor low of $ 38.72.

A break out of this level may lead to a further drop to $35.01 in the near term in anticipation of the deterioration in demand as a result of the second wave of the coronavirus pandemic and the closure of import and export ports as a result.

Short-term expectations for oil: Limited trade during this period will likely lead to higher closures and lower demand for oil and petroleum derivatives. Therefore the market is trading in a range at low volumes.

With the two main components of oil consumption still competing in the wake of the pandemic, it is difficult to build an argument for a breakout from the upside.

Even the optimistic news about lower US production was not enough to push the price of oil to its highest level and hovered around $44.50 a barrel.

Despite the US production cuts, Opec + is gradually raising production, which helps to increase global supply, so news of a drop in EIA production is not as bullish as was initially thought.

Moreover, the ongoing demand uncertainty caused by the Covid-19 pandemic and the potential for increased global production could keep prices at an average of $ 44 a barrel.

In the latest oil market report, the International Energy Agency indicated that the demand for crude oil this year is about 8.1mn bpd than it was in 2019, which is an amendment to the demand forecast for the reduction of 140,000 barrels per day.

The global oil demand is expected to reach 91.9mn bpd in 2020, down 8.1mn bpd, year on year, reflecting a halt in mobility as the number of Covid-19 cases remains high, coupled with weakness in the aviation sector, industry and fuel demand in general.

On the other hand, Opec also indicated bad news for the oil industry this year, as it confirmed that demand this year will be weaker than previously expected.

In fact, it was more pessimistic than the International Energy Agency, which estimated the demand loss for the year at 9.1mn barrels per day.

Opec now expects the global economy to shrink by 4% this year, more than the 3.7% expected economic decline in the July forecast, due to the additional negative impact of the pandemic.

For its part, the IEA classified the demand for slow jet fuel as one of the main factors for the expected decline in oil demand.

In addition to that, the uncertainty remains large surrounding the rate at which Covid-19 is spreading, meaning it is still unclear (until now) whether there will be a second global wave of infections or the recovery in the oil and gas market will continue!

I am sure many readers will think, ‘Here we are again!’

We are arguing about the price of oil, supply and demand for oil in the next stage, and although oil stocks are high, the issue of oil price and recovery is a matter of timing, and obviously linked to the Coronavirus pandemic, global economic growth and fuel consumption.

* Saad Abdulla al-Kuwari graduated in Chemical Engineering from Qatar University and obtained an MBA in Oil & Gas from Liverpool University. He was appointed CEO of Tasweeq in 2010. During his career, he has occupied several key positions in refining projects and processing, oil, gas and refined products, storage tanks and export terminals operation. He also has considerable experience in the field of Gas Processing Operations. He was also manager of Gas, Oil Petrochemical Marketing in QP Marketing Directorate for several years.