Oil prices seem to get better after a horrible week. OPEC may resume pumping the markets with fresh oil.
Oil prices have recovered from the previous lows. Last week was one of the worst weeks in history since the global oil industry decided to start tracking prices. Sources say that prices rebounded slightly showing signs that the price drop may reverse.
This also shows that things may not as bad as everyone thought. facing falling demand, the global oil industry went into a tailspin. This is all because of the COVID-19 situation. The U.S. West Texas Intermediate (WTI) crude rose 0.6% (on Sunday) to $22.77. This is a comeback from the 8% losses that occurred at the close of business last week.
Brent crude fell to $26.25 (on Sunday). This is a 2.7% loss. Activities across the globe have been shut down due to the emergence of COVID-19. This has also led to failed orders of crude cargoes. As Russia and Saudi Arabia intend to push up production in the next few weeks, the situation may get worse or better.
Oil Prices Have Fallen Due to COVID-19
If the COVID-19 situation gets better, then prices will rise due to rising demand. The reverse will occur if the situation stays the same or gets worse. As biomedical experts are working frantically to find a cure, countries are already going into shutdown. This has sparked fears of a global recession.
The oil industry is not the only market facing the doldrums. The financial markets have been taking a beating for the past month and a half or so. Stimulus packages prepared by several countries could change everything for the markets.
Sources say that the United States is preparing a $ 2 trillion bill. This is equivalent to about 10% of its economic output. This could turn things around for the oil industry and global financial markets too.
However, the oil industry may be in for more shocks as the Saudis and the Russians turn on the taps. Increasing travel restrictions, and mandatory lockups by many governments are proof. The demand for petroleum products isn’t rising anytime soon. At least while these rules exist.
OPEC isn’t helping matters as well. The end to production cuts may see copious amounts of crude coming into the international markets.
Things Will Get Better
Analysts, however, see light at the end of the tunnel. “Cost equilibrium” between the cost of production and market prices will eventually balance things. In the absence of rising demand though, all many can do is hope that things get better. which eventually will. The biggest question though is at whose cost?
Oil-producing nations had already prepared their national budgets at prices way above the current trading levels. The COVID-19 fallout has led to a gap in the income expectations of such countries.
It will take some creativity to fill this gap. Then again, creativity is an innate human trait.
As at the time of filing this report, West Texas Intermediate (WTI) crude prices were at $22.57 (-0.27%) while Brent crude stood at $25.72 (-4.67%).
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