After suffering historic price drops in the first half of 2020, oil markets are now well onto the path of recovery for the second half of the year according to Opec secretary general Mohammad Barkindo, crediting the group for its actions in helping rescue crashing oil prices.
“As we see countries begin to open up, we will see demand start to come back,” Barkindo said during a virtual ADIPEC energy dialogue. “I remain optimistic but cautious the worst is over and a recovery will be in full swing in the second half of this year, with stocks beginning to be withdrawn,” he added.
“What shape the recovery will take, whether a V shape, W or inverted hockey stick, is still uncertain,” he said.
Oil prices on Wednesday saw global benchmark Brent crude trading at $41.84 with West Texas Intermediate (WTI) on $39.51 at 4PM UAE time.
Barkindo acknowledged the demand destruction to oil markets as a result of the COVID-19 outbreak, with demand falling by 20 to 24 million barrels per day.
“Nevertheless, I am hopeful by the end of this year we will begin to see some further semblance of stability restored to oil markets. Then we will be in a position to move into the next phase of sustaining that stability,” he said.
“Hence the importance of the two-year duration of the historic agreement signed by the Opec+ group of countries and non Opec producers,” he added, pointing to the importance of the Opec+ production cuts and the cooperation between producing states.
Barkindo said with energy investments also forecasted to contract by as much 20 per cent, or $1.5 trillion, this would make it critical to ensure investments are brought back into the sector to avoid an energy crisis.
“A lack of investment in energy today will sow the seeds of another energy crisis in the medium to long term. That would not be in the interests of the global economy.”
Second wave threat
The main imminent challenge oil markets face is the risk of second pandemic wave, which could curtail demand again according to Rystad Energy’s senior oil market analyst Paolo Rodriguez Maisu.
“If the pandemic triggers a second round of lockdowns, storages will struggle to accommodate the unused oil and the gasoline uptick that we currently see will be scrapped if new travel restrictions are put in place.
“The WHO reported worrying rises in new cases in Latin America, especially in Brazil. Also, the US, China, and South Korea are experiencing new outbreaks,” Maisu added.
“This adds to concerns that the pandemic has not been contained and can have consequences in oil markets.”