Excerpts from DBS report
Analyst: Suvro Sarkar
| Brent crude oil prices have fallen by more than 20% in a single trading session on three occasions this year, something that has happened on only one occasion ever before, demonstrating the kind of volatility we are getting used to in 2020. Hence, we expect continued pressure on WTI and Brent in coming weeks, though negative oil might be an anomaly reserved for the WTI benchmark. But 2Q will be the worst, long-dated OPEC+ supply cuts raises prospects for V-shaped recovery over the next 6-12 months. |
We expect 2Q20 to be the worst in terms of oil demand, followed by 3Q20, and demand returning to quasi-normal levels by 4Q20.
Overall, we have lowered our 2020 global oil demand growth assumption to negative 11.0mmbpd, but this will be partly offset by a 7.0mmbpd y-o-y decline in oil supplies in 2020, a combination of OPEC+ cuts and and oil well shut-ins in other areas in response to low oil prices.
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V-shape recovery by end-2021 |
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OPEC and non-OPEC allies have recently agreed to cut production by close to 9.7mmbpd for 2 months from May 2020, by 7.7mmbpd for the next 6 months till December 2020, and 5.8mmbpd for the next 16 months till April 2022.
This sets the stage for a more balanced market 12-18 months in the future.
While the potential of easing of travel restrictions and removal of lockdowns put in place globally to tackle the spread of the COVID19 outbreak will be keenly watched over the next couple of months, the long-dated spread of the supply cuts ensures inventories will be drawn down quickly once demand normalises and raises prospects of a V-shaped recovery towards US$55-60/bbl oil price by the end of 2021, in our view.
| We are currently assuming lockdowns to be partially lifted by the end of 2Q20 in our base case scenario. If we look at a worse-case scenario, where lockdowns only begin to ease further on in 3Q20, a more conservative oil price forecast would see us exiting 2020 at around US$40/bbl and an average of US$40- 45/bbl in 2021, still considerable upside from current levels. |
Full report here.
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