Oil prices are set to recover with the OPEC+ production cuts and gradual lifting of lockdowns around the world in the second half of 2020, when oil prices “will be US$40 starting from the third quarter,” Mohamed Arkab, Energy Minister of OPEC’s rotating president Algeria, said on Sunday.
The global economy will not stay paralyzed for too long, and together with the 9.7 million bpd cuts that OPEC and its allies pledged for May and June, these factors are set to lift the price of oil in H2 2020, Arkab told Algeria’s national radio, as quoted by Turkey’s Anadolu Agency.
In China, which was hit first by the coronavirus, and which exited the lockdown first, the return to normalization in the transportation sector “is driving up global demand,” according to Algeria’s energy minister.
Just a few days before the OPEC+ deal enters into force, oil prices crashed again early on Monday, as the market continues to see the imminent storage shortage problem as a bigger factor for prices than the potential effect of the OPEC+ cuts and the potential easing of the lockdown measures.
At 8.30 a.m. EDT on Monday, Brent Crude was down by nearly 5 percent at $20 a barrel, and WTI Crude was crashing by more than 20 percent to below $14 per barrel.
Last week, OPEC’s fourth-largest producer, Kuwait, said it had already started to reduce crude oil supply to international markets ahead of May 1, “sensing a responsibility responding to market conditions.” Saudi Arabia, OPEC’s top producer and the world’s top oil exporter, has also begun to reduce production earlier, a Saudi industry official with knowledge of the issue told Bloomberg over the weekend.
Others, however, including Nigeria and the leader of the non-OPEC producers, Russia, haven’t rushed to cut production ahead of schedule.
Despite solemn commitments from OPEC+ producers and tentative schedules for reopening economies and easing the lockdowns, including in Italy, oil market participants continue to focus on the imminent threat of global storage overflowing rather than on the effect of the cuts and eased lockdowns two to three months down the road. (Tsvetana Paraskova for Oilprice.com)